<PAGE> 1
As filed with the Securities and Exchange Commission on February 28, 1997.
Registration No. 33-55712
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 4
NASL VARIABLE ACCOUNT
(Exact name of Registrant)
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
(Name of Depositor)
116 Huntington Avenue
Boston, Massachusetts 02116
(Address of Depositor's Principal Executive Offices)
(617) 266-6008
(Depositor's Telephone Number Including Area Code)
James D. Gallagher, Esq. Copy to:
Vice President, Secretary J. Sumner Jones, Esq.
and General Counsel Jones & Blouch
North American Security 1025 Thomas Jefferson Street, N.W.
Life Insurance Company Washington, DC 20007
116 Huntington Avenue
Boston, Massachusetts 02116
(Name and Address of Agent for Service)
Registrant has registered an indefinite amount of securities under the
Securities Act of 1933 pursuant to Rule 24f-2. The notice required pursuant to
Rule 24f-2 for the year ended December 31, 1996 was filed on February 27, 1997.
-----------------------
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to paragraph (b)
___ on (date) pursuant to paragraph (b)
<PAGE> 2
___ 60 days after filing pursuant to paragraph (a)
X on May 1, 1997 pursuant to paragraph (a) of Rule 485
<PAGE> 3
NASL VARIABLE ACCOUNT
CROSS REFERENCE TO ITEMS REQUIRED BY FORM N-4
N-4 Item Caption in Prospectus
Part A
1..................cover Page
2..................Special Terms
3..................Summary
4..................Performance Data;Financial Statements
5..................General Information about North American Security Life
Insurance Company, NASL Variable Account and NASL Series
Trust
6..................Charges and Deductions; Withdrawal Charge; Reduction or
Elimination of Withdrawal Charge; Administration Fees;
Reduction or Elimination of Annual Administration Fee;
Mortality and Expense Risk Fee; Taxes; Appendix A; Appendix B
7..................Accumulation Provisions; Company Approval Purchase Payments;
Accumulation Units; Net Investment Factor; Transfers Among
Investment Options; Telephone Transactions Special Transfer
Services-Dollar Cost Averaging; Asset Rebalancing Program;
Withdrawals; Special Withdrawal Services Systematic
Withdrawal Plan; Contract Owner Inquiries; Other Contract
Provisions; Ownership; Beneficiary; Modification;
8..................Annuity Provisions; General; Annuity Options; Determination
of Amount of the First Variable Annuity Payment;
<PAGE> 4
Annuity Units and the Determination of Subsequent Variable
Annuity Payments; Transfers After Maturity Date
9..................Accumulation Provisions; Death Benefit Before Maturity Date;
Annuity Provisions; Death Benefit After Maturity Date
10.................Accumulation Provisions; Purchase Payments; Accumulation
Units; Value of Accumulation Units; Net Investment Factor;
Distribution of Contracts
11.................Withdrawals; Restrictions under the Texas Optional Retirement
Program; Accumulation Provisions; Purchase Payments; Other
Contract Provisions; Ten Day Right to Review
12.................Federal Tax Matters; Introduction; The Company's Tax Status;
Taxation of Annuities in General; Diversification
Requirements; Qualified Retirement Plans
13.................Legal Proceedings
14.................Statement of Additional Information - Table of Contents
Part B Caption in Statement of Additional Information
15.................Cover Page
16.................Table of Contents
17.................General Information and History
18.................Services-Independent Accountants; Services-Servicing Agent
19.................Not Applicable
20.................Services-Principal Underwriter
21.................Performance Data
22.................Not Applicable
<PAGE> 5
23.................Financial Statements
<PAGE> 6
Annuity Service Office Mailing Address
116 Huntington Avenue Post Office Box 9230
Boston, Massachusetts 02116 Boston, Massachusetts
(617) 266-6008 02205-9230
(800) 344-1029
- --------------------------------------------------------------------------------
NASL VARIABLE ACCOUNT
- --------------------------------------------------------------------------------
OF
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
FLEXIBLE PURCHASE PAYMENT INDIVIDUAL DEFERRED
COMBINATION FIXED AND VARIABLE ANNUITY CONTRACT
NON-PARTICIPATING
This Prospectus describes a flexible purchase payment individual
deferred variable annuity contract (the "contract") issued by North American
Security Life Insurance Company ("the Company"), a stock life insurance company
the ultimate parent of which is The Manufacturers Life Insurance Company
("Manulife"). The contract is designed for use in connection with retirement
plans which may or may not qualify for special federal income tax treatment.
The contract provides for the accumulation of contract values and the
payment of annuity benefits on a variable and/or fixed basis. The contract
offers thirty-five investment options: thirty-four variable and a one year fixed
account. The contract value during the accumulation period and annuity payments,
if selected on a variable basis, will vary according to the investment
performance of sub-accounts of NASL Variable Account (the "Variable Account").
The Variable Account is a separate account established by the Company. Purchase
payments and earnings on those purchase payments may be allocated to and
transferred among one or more of thirty-four sub-accounts of the Variable
Account. The assets of each sub-account are invested in shares of NASL Series
Trust (the "Trust"), a mutual fund having an investment portfolio for each
sub-account of the Variable Account (see the accompanying Prospectus of the
Trust). Fixed contract values may be accumulated under the one year fixed
account investment option. Except as specifically noted herein and as set forth
under the caption "FIXED ACCOUNT INVESTMENT OPTION" below, this Prospectus
describes only the variable portion of the contract.
Additional information about the contract and the Variable Account is
contained in a Statement of Additional Information, dated the same date as this
Prospectus, which has been filed with the Securities and Exchange Commission
(the "Commission")and is incorporated herein by reference. The Statement of
Additional Information is available without charge upon request by writing the
Company at the above address or telephoning (617) 266-6008. In addition, the
Commission maintains a Web site (http://www.sec.gov) that contains the Statement
of Additional Information, material incorporated by reference, and other
information regarding registrants that file electronically with the Commission.
The table of contents for the Statement of Additional Information is included on
page __ of this Prospectus.
SHARES OF THE TRUST ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY.
PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE. IT
CONTAINS INFORMATION ABOUT THE VARIABLE ACCOUNT AND THE VARIABLE PORTION OF THE
CONTRACT THAT A PROSPECTIVE PURCHASER SHOULD KNOW BEFORE INVESTING.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is May 1, 1997.
VV.PRO597
<PAGE> 7
TABLE OF CONTENTS
SPECIAL TERMS ............................................
SUMMARY ..................................................
TABLE OF ACCUMULATION UNIT VALUES.........................
GENERAL INFORMATION ABOUT NORTH
AMERICAN SECURITY LIFE INSURANCE
COMPANY, NASL VARIABLE ACCOUNT
AND NASL SERIES TRUST.....................................
North American Security Life Insurance Company.......
NASL Variable Account................................
NASL Series Trust....................................
DESCRIPTION OF THE CONTRACT ..............................
ACCUMULATION PROVISIONS ...............................
Purchase Payments ...................................
Accumulation Units ..................................
Value of Accumulation Units .........................
Net Investment Factor ...............................
Transfers Among Investment Options ..................
MAXIMUM NUMBER OF INVESTMENT OPTIONS
Telephone Transactions ..............................
Special Transfer Services - Dollar Cost Averaging....
Asset Rebalancing Program............................
Withdrawals..........................................
Special Withdrawal Services - Systematic
Withdrawal Plan...................................
Loans................................................
Death Benefit Before Maturity Date...................
ANNUITY PROVISIONS ....................................
General .............................................
Annuity Options .....................................
Determination of Amount of the First
Variable Annuity Payment...........................
Annuity Units and the Determination
of Subsequent Variable Annuity Payments ..........
Transfers After Maturity Date .......................
Death Benefit on or After Maturity Date..............
OTHER CONTRACT PROVISIONS .............................
Ten Day Right to Review .............................
Ownership ...........................................
Beneficiary .........................................
Modification ........................................
Company Approval ....................................
Misstatement and Proof of Age, Sex or Survival.......
FIXED ACCOUNT INVESTMENT OPTION...........................
CHARGES AND DEDUCTIONS ...................................
Withdrawal Charges ..................................
Reduction or Elimination of Withdrawal Charges ......
Administration Fees..................................
Distribution Fee.....................................
Mortality and Expense Risk Fee.......................
Taxes ...............................................
FEDERAL TAX MATTERS ......................................
INTRODUCTION ..........................................
THE COMPANY'S TAX STATUS ..............................
TAXATION OF ANNUITIES IN GENERAL ......................
Tax Deferral During Accumulation Period..............
Taxation of Partial and Full Withdrawals.............
Taxation of Annuity Payments.........................
Taxation of Death Benefit Proceeds...................
Penalty Tax on Premature Distributions...............
Aggregation of Contracts.............................
QUALIFIED RETIREMENT PLANS.............................
Qualified Plan Types.................................
Direct Rollovers.....................................
FEDERAL INCOME TAX WITHHOLDING.........................
GENERAL MATTERS...........................................
Tax Deferral.........................................
Performance Data.....................................
Financial Statements.................................
Asset Allocation and Timing Services.................
Restrictions Under the Texas Optional
Retirement Program ...............................
Distribution of Contracts ...........................
Contract Owner Inquiries.............................
Legal Proceedings ...................................
Other Information ...................................
STATEMENT OF ADDITIONAL INFORMATION-
TABLE OF CONTENTS......................................
APPENDIX A: EXAMPLES OF CALCULATION OF
WITHDRAWAL CHARGE......................................
APPENDIX B: STATE PREMIUM TAXES..........................
APPENDIX C: MAXIMUM MATURITY
AGES IN PENNSYLVANIA......................................
2
<PAGE> 8
SPECIAL TERMS
The following terms as used in this Prospectus have the indicated
meanings:
Accumulation Unit - A unit of measure that is used to calculate the
value of the contract before the maturity date.
Annuitant - Any natural person or persons whose life is used to
determine the duration of annuity payments involving life contingencies. If the
contract owner names more than one person as an "Annuitant," the second person
named shall be referred to as "Co-Annuitant." All provisions based on the date
of the death of the "Annuitant" will be based on the date of death of the last
to survive of the "Annuitant" or "Co-Annuitant." The "Annuitant" and
"Co-Annuitant" will be referred to collectively as "Annuitant." The "Annuitant"
is as specified in the application, unless changed.
Annuity Option - The method selected by the contract owner for annuity
payments made by the Company.
Annuity Service Office - The service office of the Company is P.O. Box
9230, Boston, Massachusetts 02205-9230.
Annuity Unit - A unit of measure that is used after the maturity date
to calculate variable annuity payments.
Beneficiary - The person, persons or entity entitled to the death
benefit under the contract upon the death of the annuitant. The beneficiary is
as specified in the application, unless changed. (See also "Successor Owner").
Contingent Beneficiary - The person, persons or entity to become the
beneficiary if the beneficiary is not alive. The contingent beneficiary is as
specified in the application, unless changed.
Contract Anniversary - The anniversary of the contract date.
Contract Date - The date of issue of the contract.
Contract Value - The total of the investment account values and, if
applicable, any amount in the loan account attributable to the contract.
Contract Year - The period of twelve consecutive months beginning on
the contract date or any anniversary thereof.
Debt - Any amounts in the loan account attributable to the contract
plus any accrued loan interest. The loan provision is applicable to certain
qualified contracts only.
Due Proof of Death - Due Proof of Death is required upon the death of
the Annuitant or the Owner. One of the following must be received at the Annuity
Service Office within one year of the date of death:
(a) A certified copy of a death certificate;
(b) A certified copy of a decree of a court of competent
jurisdiction as to the finding of death; or
(c) Any other proof satisfactory to us.
Death benefits will be paid within 7 days of receipt of due proof of death and
all required claim forms by the Company's Annuity Service Office.
Fixed Annuity - Any annuity option with payments which are
predetermined and guaranteed as to dollar amount.
General Account - All the assets of the Company other than assets in
separate accounts.
Investment Account - An account established by the Company which
represents a contract owner's interest in an investment option prior to the
maturity date.
Investment Account Value - The value of a contract owner's investment
in an investment account.
Investment Options - The investment choices available to contract
owners. There are thirty-four sub-accounts of the Variable Account and a one
year fixed investment option currently available.
3
<PAGE> 9
Loan Account - The portion of the general account that is used for
collateral when a loan is taken.
Maturity Date - The date on which annuity benefits commence. The
maturity date is the date specified on the contract specifications page, unless
changed. If no date is specified, the maturity date, subject to applicable state
law, will be the later of the first day of the month following the annuitant's
85th birthday or the first month following the tenth contract anniversary.
Net Purchase Payment - The purchase payment less the amount of premium
tax, if any.
Non-Qualified Contracts - Contracts which are not issued under
qualified plans.
Owner or Contract Owner - The person, persons (co-owner) or entity
entitled to all of the ownership rights under the contract. The owner has the
legal right to make all changes in contractual designations where specifically
permitted by the contract. The owner is as specified in the application, unless
changed.
Portfolio or Trust Portfolio - A separate investment portfolio of the
Trust, a mutual fund in which the Variable Account invests, or of any successor
mutual fund.
Purchase Payment - An amount paid by a contract owner to the Company as
consideration for the benefits provided by the contract.
Qualified Contracts - Contracts issued under qualified plans.
Qualified Plans - Retirement plans which receive favorable tax
treatment under Section 401, 403, 408 or 457 of the Internal Revenue Code of
1986, as amended.
Separate Account - A segregated account of the Company that is not
commingled with the Company's general assets and obligations.
Sub-Account(s) - One or more of the sub-accounts of the Variable
Account. Each sub-account is invested in shares of a different Trust portfolio.
Successor Owner - The person, persons or entity to become the owner if
the owner dies prior to the Maturity Date. The successor owner is as specified
in the application, unless changed. If no Successor Owner is designated or the
Successor Owner dies before the Owner, the Owner's estate is the Successor
Owner. (See also "Beneficiary").
Valuation Date - Any date on which the New York Stock Exchange is open
for business and the net asset value of a Trust portfolio is determined.
Valuation Period - Any period from one valuation date to the next,
measured from the time on each such date that the net asset value of each
portfolio is determined.
Variable Account - The NASL Variable Account, which is a separate
account of the Company.
Variable Annuity - An annuity option with payments which: (1) are not
predetermined or guaranteed as to dollar amount, and (2) vary in relation to the
investment experience of one or more specified sub-accounts.
4
<PAGE> 10
SUMMARY
The Contract. The contract offered by this Prospectus is a flexible
purchase payment individual deferred variable annuity contract. The contract
provides for the accumulation of contract values on a variable basis and the
payment of annuity benefits on a variable and/or fixed basis.
Retirement Plans. The contract may be issued pursuant to either
non-qualified retirement plans or plans qualifying for special income tax
treatment under the Internal Revenue Code, such as individual retirement
accounts and annuities, pension and profit-sharing plans for corporations and
sole proprietorships/partnerships ("H.R. 10" and "Keogh" plans), tax-sheltered
annuities, and state and local government deferred compensation plans. (See
"QUALIFIED RETIREMENT PLANS")
Purchase Payments. A contract may be issued upon the making of an
initial purchase payment of $25,000 or more. Minimum subsequent purchase
payments must be $1,000, with an exception for qualified plans where minimum
subsequent purchase payments must be $30. Purchase payments may be made at any
time. If a purchase payment would cause the contract value to exceed $1,000,000,
or the contract value already exceeds $1,000,000, no additional purchase
payments will be accepted without prior approval of the Company. (See "PURCHASE
PAYMENTS")
Investment Options. Purchase payments may be allocated among the
thirty-five investment options currently available under the contract:
thirty-four variable account investment options and a one year fixed investment
option. Due to the current administrative capabilities, a contract owner is
limited to a maximum of seventeen investment options (including all fixed
account investment options) during the period prior to the maturity date of the
contract. The thirty-four investment options are the thirty-four sub-accounts of
the Variable Account, a separate account established by the Company. The
sub-accounts invest in corresponding portfolios of the Trust: the Pacific Rim
Emerging Markets Trust, the Science & Technology Trust, the International Small
Cap Trust, the Emerging Growth Trust, the Pilgrim Baxter Growth Trust, the
Small/Mid Cap Trust, the International Stock Trust, the Worldwide Growth Trust,
the Global Equity Trust, the Growth Trust, the Equity Trust, the Quantitative
Equity Trust, the Blue Chip Growth Trust, the Real Estate Securities Trust, the
Value Trust, the International Growth and Income Trust, the Growth and Income
Trust, the Equity-Income Trust, the Balanced Trust, the Aggressive Asset
Allocation Trust, the High Yield Trust, the Moderate Asset Allocation Trust, the
Conservative Asset Allocation Trust, the Strategic Bond Trust, the Global
Government Bond Trust, the Capital Growth Bond Trust, the Investment Quality
Bond Trust, the U.S. Government Securities Trust, the Money Market Trust, the
Lifestyle Aggressive 1000 Trust, the Lifestyle Growth 820 Trust, the Lifestyle
Balanced 640 Trust, the Lifestyle Moderate 460 Trust and the Lifestyle
Conservative 280 Trust (see the accompanying Prospectus of the Trust). The
contract value during the accumulation period and periodic annuity payments, if
selected on a variable basis, will reflect the investment performance of the
sub-accounts selected. (See "NASL VARIABLE ACCOUNT") Purchase payments may also
be allocated to the one year fixed account investment option. Under the fixed
account investment option, the Company guarantees the principal value of
purchase payments and the rate of interest credited to the investment account
for the term of the guarantee period. The portion of the contract value in the
fixed account investment option and monthly annuity payments, if selected on a
fixed basis, will reflect such interest and principal guarantees. (See "FIXED
ACCOUNT INVESTMENT OPTION") Subject to certain regulatory limitations, the
Company may elect to add, subtract or substitute investment options.
Transfers. Prior to the maturity date, amounts may be transferred among
the investment options. After the maturity date, amounts may be transferred from
one sub-account to another. There is no transaction charge for transfers.
Transfers from any investment account must be at least $300 or, if less, the
entire balance in the investment account. If, after the transfer the amount
remaining in the Investment Account of the contract from which the transfer is
made is less than $100, then the Company will transfer the entire amount instead
of the requested amount. The Company may impose certain additional limitations
on transfers. (See "TRANSFERS AMONG INVESTMENT OPTIONS" and "TRANSFERS AFTER
MATURITY DATE") Transfer privileges may also be used under a special service
offered by the Company to dollar cost average an investment in the contract.
(See "SPECIAL TRANSFER SERVICES - DOLLAR COST AVERAGING")
Withdrawals. Prior to the earlier of the maturity date or the death of
the annuitant, the contract owner may withdraw all or a portion of the contract
value. The amount withdrawn from any investment account must be at least $300
or, if less, the entire balance of the investment account. If a partial
withdrawal plus any applicable withdrawal charge would reduce the contract value
to less than $300, the withdrawal request will be treated as a request to
withdraw the entire contract value. A withdrawal charge and the $30 per year
administration fee, if applicable, may be imposed. (See "WITHDRAWALS") A
withdrawal may be subject to a penalty tax. (See "FEDERAL TAX MATTERS")
Withdrawal privileges may also be exercised pursuant to the Company's systematic
withdrawal plan service. (See "SPECIAL WITHDRAWAL SERVICES - SYSTEMATIC
WITHDRAWAL PLAN")
5
<PAGE> 11
Loans. The Company offers a loan privilege to owners of contracts
issued in connection with Section 403(b) qualified plans that are not subject to
Title I of ERISA. Owners of such contracts may obtain loans using the contract
as the only security for the loan. The effective cost of a contract loan is 2%
per year of the amount borrowed. (See "LOANS")
Death Benefit. Generally, if the annuitant dies before the maturity
date, the Company will pay to the beneficiary the minimum death benefit less any
debt. If the annuitant dies on or before the first of the month following his or
her 85th birthday and had an attained age of less than 81 years on the contract
date, the minimum death benefit will be equal to the greater of: (a) the
contract value on the date due proof of death and all required claim forms are
received at the Company's Annuity Service Office, or (b) the excess of (i) the
sum of each purchase payment accumulated daily at a rate equivalent to 5% per
year starting on the date each purchase payment is allocated to the contract,
subject to a maximum accumulation of two times each purchase payment, over (ii)
the sum of each withdrawal or annuitized amount, including any applicable
withdrawal charges, accumulated daily at a rate equivalent to 5% per year
starting as of the date of each such withdrawal or annuitization, with a maximum
accumulation of two times each such withdrawal or annuitized amount. If the
annuitant dies after the first of the month following his or her 85th birthday
or had attained age 81 or greater on the contract date, the minimum death
benefit will be the amount payable on total withdrawal on the date due proof of
death and all required claim forms are received at the Company's Annuity Service
Office. In certain other cases, an amount equal to the owner's interest will be
distributed when the owner dies before the maturity date. (See "DEATH BENEFIT
BEFORE MATURITY DATE") If the annuitant dies after the maturity date and annuity
payments have been selected based on an annuity option providing for payments
for a guaranteed period, the Company will make the remaining guaranteed payments
to the beneficiary. (See "DEATH BENEFIT ON OR AFTER MATURITY DATE")
Annuity Payments. The Company offers a variety of fixed and variable
annuity options. Periodic annuity payments will begin on the maturity date. The
contract owner selects the maturity date, frequency of payment and annuity
option. (See "ANNUITY PROVISIONS")
Ten Day Review. Within 10 days of receipt of a contract, the contract
owner may cancel the contract by returning it to the Company. (See "TEN DAY
RIGHT TO REVIEW")
Charges and Deductions. The following table and Example are designed to
assist contract owners in understanding the various costs and expenses that
contract owners bear directly and indirectly. The table reflects expenses of the
separate account and the underlying portfolio company. In addition to the items
listed in the following table, premium taxes may be applicable to certain
contracts and the Company reserves the right to impose an annual $30 per
contract administration fee on contracts where the contract value is less than
$10,000 as a result of a partial withdrawal. The items listed under "Contract
Owner Transaction Expenses" and "Separate Account Annual Expenses" are more
completely described in this Prospectus (see "CHARGES AND DEDUCTIONS"). The
items listed under "Trust Annual Expenses" are described in detail in the
accompanying Trust Prospectus to which reference should be made.
6
<PAGE> 12
CONTRACT OWNER TRANSACTION EXPENSES
Deferred sales load (as percentage of purchase payments)*
<TABLE>
<CAPTION>
NUMBER OF COMPLETE YEARS
PURCHASE PAYMENT IN CONTRACT WITHDRAWAL CHARGE PERCENTAGE
<S> <C> <C>
0 3%
1 3%
2 3%
3+ 0%
</TABLE>
* Effective November 1, 1996, no withdrawal charge will be imposed on
withdrawals from contracts issued on or after November 1, 1996.
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
<TABLE>
<S> <C>
Mortality and expense risk fees............................ 1.25%
Administration fee ........................................ 0.25%
Distribution fee........................................... 0.15%
Total Separate Account Annual Expenses..................... 1.65%
</TABLE>
TRUST ANNUAL EXPENSES
(as a percentage of Trust average net assets)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL TRUST
TRUST PORTFOLIO FEES EXPENSES ANNUAL EXPENSES
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pacific Rim Emerging Markets........ 0.850% 0.300% 1.150%
Science & Technology................ 1.100% 0.100%* 1.200%
International Small Cap............. 1.100% 0.190%* 1.290%
Emerging Growth..................... 1.050% 0.100%* 1.150%
Pilgrim Baxter Growth............... 1.050% 0.300%* 1.350%
Small/Mid Cap....................... 1.000% 0.100%* 1.100%
International Stock................. 1.050% 0.200%* 1.250%
Worldwide Growth.................... 1.000% 0.300% 1.300%
Global Equity....................... 0.900% 0.110% 1.010%
Growth.............................. 0.850% 0.160%* 1.010%
Equity.............................. 0.750% 0.050% 0.800%
Quantitative Equity**............... 0.700%** 0.060% 0.760%**
Blue Chip Growth.................... 0.925% 0.050% 0.975%
Real Estate Securities**............ 0.700%** 0.100% 0.800%**
Value............................... 0.800% 0.050%* 0.850%
International Growth and Income..... 0.950% 0.160% 1.110%
Growth and Income................... 0.750% 0.050% 0.800%
Equity-Income....................... 0.800% 0.050% 0.850%
Balanced............................ 0.800% 0.150%* 0.950%
Aggressive Asset Allocation......... 0.750% 0.150% 0.900%
High Yield.......................... 0.775% 0.145%* 0.920%
Moderate Asset Allocation........... 0.750% 0.090% 0.840%
Conservative Asset Allocation....... 0.750% 0.120% 0.870%
Strategic Bond...................... 0.775% 0.085% 0.860%
Global Government Bond.............. 0.800% 0.100% 0.900%
Capital Growth Bond**............... 0.650%** 0.100% 0.750%**
Investment Quality Bond............. 0.650% 0.080% 0.730%
</TABLE>
7
<PAGE> 13
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL TRUST
TRUST PORTFOLIO FEES EXPENSES ANNUAL EXPENSES
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Government Securities.......... 0.650% 0.060% 0.710%
Money Market........................ 0.500% 0.050% 0.550%
</TABLE>
<TABLE>
<CAPTION>
MINIMUM TOTAL TRUST MAXIMUM TOTAL TRUST
ANNUAL EXPENSES*** ANNUAL EXPENSES****
------------------- -------------------
<S> <C> <C>
Lifestyle Aggressive 1000# 0.760% 1.350%
Lifestyle Growth 820# 0.720% 1.260%
Lifestyle Balanced 640# 0.680% 1.180%
Lifestyle Moderate 460# 0.630% 1.090%
Lifestyle Conservative 280# 0.590% 1.010%
</TABLE>
*Based on estimates of payments to be made during the current fiscal year.
** "Total Trust Annual Expenses" for the Quantitative Equity, Real Estate
Securities and Capital Growth Bond Trusts do not reflect an agreement by NASL
Financial Services, Inc. ("NASL Financial") voluntarily to waive fees payable to
it and/or reimburse expenses for a period of one year commencing January 1, 1997
to the extent necessary to prevent "Total Trust Annual Expenses" for each such
Trust from exceeding .50% of average net assets. "Management Fees" for each such
Trust do not reflect estimated fee waivers by NASL Financial pursuant to such
agreement. If such waivers were reflected "Management Fees" would be 0.440%,
0.400% and 0.400% for the Quantitative Equity Trust, Real Estate Securities
Trust and the Capital Growth Bond Trust, respectively.
*** Minimum Fees are determined assuming the following allocation for the
Underlying Portfolios: Lifestyle Aggressive 1000 Trust, 100% Quantitative Equity
Trust; Lifestyle Growth 820 Trust, 80% Quantitative Equity Trust, 20% Money
Market Trust; Lifestyle Balanced 640 Trust, 60% Quantitative Equity Trust, 40%
Money Market Trust; Lifestyle Moderate 460 Trust, 40% Quantitative Equity Trust,
60% Money Market Trust; Lifestyle Conservative 280 Trust, 20% Quantitative
Equity Trust, 80% Money Market Trust.
**** Maximum Fees are determined assuming the following allocation for the
Underlying Portfolios: Lifestyle Aggressive 1000 Trust, 100% Pilgrim Baxter
Growth Trust; Lifestyle Growth 820 Trust, 80% Pilgrim Baxter Growth Trust, 20%
High Yield Trust; Lifestyle Balanced 640 Trust, 60% Pilgrim Baxter Growth Trust,
40% High Yield Trust; Lifestyle Moderate 460 Trust, 40% Pilgrim Baxter Growth
Trust, 60% High Yield Trust; Lifestyle Conservative 280 Trust, 20% Pilgrim
Baxter Growth Trust, 80% High Yield Trust.
#Each Lifestyle Trust will invest in shares of the Underlying Portfolios.
Therefore, each Lifestyle Trust will, in addition to its own expenses, such as
certain Other Expenses, bear its pro rata share of the fees and expenses
incurred by the Underlying Portfolios and the investment return of each
Lifestyle Trust will be net of the Underlying Portfolio expenses. NASL Financial
has voluntarily agreed to pay the expenses of each Lifestyle Trust (excluding
the expenses of the Underlying Portfolios). This expense reimbursement may be
terminated at any time after December 31, 1997. If such expense reimbursement
was not in effect, Total Trust Annual Expenses would be .04% higher (based on
estimates of the expenses of the Lifestyle Trusts for the current fiscal year)
as noted in the chart below:
<TABLE>
<CAPTION>
MINIMUM TOTAL TRUST MAXIMUM TOTAL TRUST
ANNUAL EXPENSES*** ANNUAL EXPENSES****
------------------- -------------------
<S> <C> <C>
Lifestyle Aggressive 1000 Trust 0.800% 1.390%
Lifestyle Growth 820 Trust 0.760% 1.300%
Lifestyle Balanced 640 Trust 0.720% 1.220%
Lifestyle Moderate 460 Trust 0.670% 1.130%
Lifestyle Conservative 280 Trust 0.630% 1.050%
</TABLE>
EXAMPLE
A contract owner would pay the following expenses on a $1,000 investment,
assuming 5% annual return on assets, if the contract owner surrendered the
contract at the end of the applicable time period: (For contracts issued on or
after November 1, 1996, no withdrawal charges will be imposed upon surrender,
therefore, for such contracts please refer to the second table for expenses if
the Contract Owner surrendered at the end of the applicable time period.)
8
<PAGE> 14
<TABLE>
<CAPTION>
TRUST PORTFOLIO 1 YEAR 3 YEARS 5 YEARS* 10 YEARS*
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pacific Rim Emerging Markets........ $56 $116 $148 $313
Science & Technology................ 56 117
International Small Cap............. 57 120 155 326
Emerging Growth..................... 56 116
Pilgrim Baxter Growth............... 58 122
Small/Mid Cap....................... 55 114 145 308
International Stock................. 57 119
Worldwide Growth.................... 57 120
Global Equity....................... 55 112 141 299
Growth.............................. 55 112 141 299
Equity.............................. 53 106 131 279
Quantitative Equity................. 52 105 129 275
Blue Chip Growth.................... 54 111 139 296
Real Estate Securities.............. 53 106 131 279
Value............................... 53 107
Int'l Growth and Income............. 56 115 146 309
Growth and Income................... 53 106 131 279
Equity-Income....................... 53 107 133 284
Balanced............................ 54 110
Aggressive Asset Allocation......... 54 109 136 289
High Yield.......................... 54 109
Moderate Asset Allocation........... 53 107 133 283
Conservative Asset Allocation....... 53 108 134 286
Strategic Bond...................... 53 107 134 285
Global Government Bond.............. 54 109 136 289
Capital Growth Bond................. 52 104 128 274
Investment Quality Bond............. 52 104 127 272
U.S. Government Securities.......... 52 103 126 270
Money Market........................ 50 98 118 253
Lifestyle Aggressive 1000**......... 55 113
Lifestyle Growth 820**.............. 54 111
Lifestyle Balanced 640**............ 54 109
Lifestyle Moderate 460**............ 53 107
Lifestyle Conservative 280**........ 53 106
</TABLE>
* The example of expenses for certain Trusts contains only one year and three
year examples since they are newly formed Trusts.
** The example of expenses for the Lifestyle Trusts is calculated using the
midpoint of the minimum and maximum fees set forth under Trust Annual Operating
Expenses.
A contract owner would pay the following expenses on a $1,000
investment, assuming 5% annual return on assets, if the contract owner
annuitized as provided in the contract or did not surrender the contract at the
end of the applicable time period:
<TABLE>
<CAPTION>
TRUST PORTFOLIO 1 YEAR 3 YEARS 5 YEARS* 10 YEARS*
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pacific Rim Emerging Markets........ $28 $87 $148 $313
Science & Technology................ 29 88
International Small Cap............. 30 91 155 326
Emerging Growth..................... 28 87
Pilgrim Baxter Growth............... 30 93
Small/Mid Cap....................... 28 85 145 308
International Stock................. 29 90
Worldwide Growth.................... 30 91
Global Equity....................... 27 83 141 299
Growth.............................. 27 83 141 299
</TABLE>
9
<PAGE> 15
<TABLE>
<CAPTION>
TRUST PORTFOLIO 1 YEAR 3 YEARS 5 YEARS* 10 YEARS*
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Equity.............................. 25 76 131 279
Quantitative Equity................. 24 75 129 275
Blue Chip Growth.................... 27 82 139 296
Real Estate Securities.............. 25 76 131 279
Value............................... 25 78
Int'l Growth and Income............. 28 86 146 309
Growth and Income................... 25 76 131 279
Equity-Income....................... 25 78 133 284
Balanced............................ 26 81
Aggressive Asset Allocation......... 26 79 136 289
High Yield.......................... 26 80
Moderate Asset Allocation........... 25 78 133 283
Conservative Asset Allocation....... 26 78 134 286
Strategic Bond...................... 25 78 134 285
Global Government Bond.............. 26 79 136 289
Capital Growth Bond................. 24 75 128 284
Investment Quality Bond............. 24 74 127 272
U.S. Government Securities.......... 24 74 126 270
Money Market........................ 22 69 118 253
Lifestyle Aggressive 1000**......... 27 84
Lifestyle Growth 820**.............. 27 82
Lifestyle Balanced 640**............ 26 80
Lifestyle Moderate 460**............ 25 78
Lifestyle Conservative 280**........ 25 76
</TABLE>
* The example of expenses for certain Trusts contains only one year and three
year examples since they are newly formed Trusts.
* * The example of expenses for the Lifestyle Trusts is calculated using the
midpoint of the minimum and maximum fees set forth under Trust Annual Operating
Expenses.
For purposes of presenting the foregoing Example, the Company has made
certain assumptions mandated by the Commission. The Company has assumed that,
where applicable, the maximum sales load is deducted, that there are no
transfers or other transactions and that the "Other Expenses" line item under
"Trust Annual Expenses" will remain the same. Such assumptions, which are
mandated by the Commission in an attempt to provide prospective investors with
standardized data with which to compare various annuity contracts, do not take
into account certain features of the contract and prospective changes in the
size of the Trust which may operate to change the expenses borne by contract
owners. Consequently, the amounts listed in the Example above should not be
considered a representation of past or future expenses and actual expenses borne
by contract owners may be greater or lesser than those shown.
* * * * * * * *
The above summary is qualified in its entirety by the detailed
information appearing elsewhere in this Prospectus and Statement of Additional
Information and the accompanying Prospectus and Statement of Additional
Information for the Trust, to which reference should be made.
10
<PAGE> 16
TABLE OF ACCUMULATION UNIT VALUES
<TABLE>
<CAPTION>
=================================================================================================================
SUB-ACCOUNT UNIT VALUE AT START OF UNIT VALUE AT END OF YEAR NUMBER OF UNITS AT END
YEAR* OF YEAR
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
International Small Cap
1996 $12.500000 $13.465203 233,342.969
- -----------------------------------------------------------------------------------------------------------------
Small/Mid Cap
1996 $12.500000 $13.188627 283,880.941
- -----------------------------------------------------------------------------------------------------------------
Global Equity
1994 $13.117996 $12.153179 49,050.593
1995 12.153179 12.872711 361,285.266
1996 12.872711 14.257610 2,854,082.412
- -----------------------------------------------------------------------------------------------------------------
Growth
1996 $12.500000 $13.711434 59,459.482
- -----------------------------------------------------------------------------------------------------------------
Equity
1994 $10.675585 $10.965867 36,324.491
1995 10.965867 15.402974 663,652.478
1996 15.402974 18.199588 2,871,862.671
- -----------------------------------------------------------------------------------------------------------------
Blue Chip Growth
1994 $ 9.145044 $ 9.280989 18,796.455
1995 9.280989 11.551552 274,368.201
1996 11.551552 14.303631 1,496,909.237
- -----------------------------------------------------------------------------------------------------------------
International Growth & Income
1995
1996 $10.00000 $10.528678 178,852.062
10.528678 11.660474 687,006.606
- -----------------------------------------------------------------------------------------------------------------
Growth and Income
1994 $10.576574 $10.436393 24,644.881
1995 10.436393 13.263871 448,739.926
1996 13.263871 16.024067 2,888,470.321
- -----------------------------------------------------------------------------------------------------------------
Equity-Income
1994 $10.844086 $10.578121 31,102.019
1995 10.578121 12.870851 375,815.524
1996 12.870851 15.172018 2,075,876.729
- -----------------------------------------------------------------------------------------------------------------
Aggressive Asset Allocation
1994 $10.444531 $10.303433 7,523.248
1995 10.303433 12.443644 67,382.620
1996 12.443644 13.829135 407,378.669
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 17
<TABLE>
<CAPTION>
=================================================================================================================
SUB-ACCOUNT UNIT VALUE AT START OF UNIT VALUE AT END OF YEAR NUMBER OF UNITS AT END
YEAR* OF YEAR
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Moderate Asset Allocation
1994 $10.269505 $10.156264 19,952.394
1995 10.156264 12.056663 205,665.149
1996 12.056663 13.039212 1,358,995.894
- -----------------------------------------------------------------------------------------------------------------
Conservative Asset Allocation
1994
1995 $10.124972 $10.050011 2,989.757
1996 10.050011 11.672867 123,692.494
11.672867 12.287873 661,002.839
- -----------------------------------------------------------------------------------------------------------------
Strategic Bond
1994 $10.132498 $ 9.897404 9,621.542
1995 9.897404 11.607403 146,877.133
1996 11.607403 13.093621 687,006.604
- -----------------------------------------------------------------------------------------------------------------
Global Government Bond
1994 $10.345362 $10.262238 6,324.370
1995 10.262238 12.434811 108,887.995
1996 12.434811 13.821405 1,152,443.822
- -----------------------------------------------------------------------------------------------------------------
Investment Quality Bond
1994 $ 9.785855 $ 9.713969 5,980.272
1995 9.713969 11.417606 143,843.254
1996 11.417606 11.519237 727,979.095
- -----------------------------------------------------------------------------------------------------------------
U.S. Government Securities
1994 $10.033365 $ 9.968713 17,964.448
1995 9.968713 11.333420 218,996.714
1996 11.333420 11.522857 909,658.556
- -----------------------------------------------------------------------------------------------------------------
Money Market
1994 $10.172129 $10.290731 46,595.747
1995 10.290731 10.692803 282,116.623
1996 10.692803 11.048244 1,414,861.094
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
* Units under each series of contracts were first credited under the
sub-accounts on August 9, 1994, except in the case of International Growth and
Income where units were first credited under the sub-account on January 9, 1995,
Small/Mid Cap and International Small Cap where units were first credited March
4, 1996 and Growth where units were first credited July 15, 1996.
12
<PAGE> 18
GENERAL INFORMATION ABOUT NORTH AMERICAN
SECURITY LIFE INSURANCE
COMPANY, NASL VARIABLE ACCOUNT AND NASL SERIES TRUST
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
North American Security Life Insurance Company ("the Company") is a
stock life insurance company organized under the laws of Delaware in 1979. The
Company's principal office is located at 116 Huntington Avenue, Boston,
Massachusetts 02116. The ultimate parent of the Company is The Manufacturers
Life Insurance Company ("Manulife"), a Canadian mutual life insurance company
based in Toronto, Canada. Prior to January 1, 1996, the Company was a wholly
owned subsidiary of North American Life Assurance Company ("NAL"), a Canadian
mutual life insurance company. On January 1, 1996 NAL and Manulife merged with
the combined company retaining the Manulife name.
NASL VARIABLE ACCOUNT
The Company established the Variable Account on August 24, 1984 as a
separate account under Delaware law. The income, gains and losses, whether or
not realized, from assets of the Variable Account are, in accordance with the
contracts, credited to or charged against the Variable Account without regard to
other income, gains or losses of the Company. Nevertheless, all obligations
arising under the contracts are general corporate obligations of the Company.
Assets of the Variable Account may not be charged with liabilities arising out
of any other business of the Company.
The Variable Account is registered with the Commission under the
Investment Company Act of 1940, as amended ("1940 Act") as a unit investment
trust. A unit investment trust is a type of investment company which invests its
assets in specified securities, such as the shares of one or more investment
companies. Registration under the 1940 Act does not involve supervision by the
Commission of the management or investment policies or practices of the Variable
Account.
There are currently thirty-four sub-accounts within the Variable
Account. The Company reserves the right, subject to compliance with applicable
law, to add other sub-accounts, eliminate existing sub-accounts, combine
sub-accounts or transfer assets in one sub-account to another sub-account
established by the Company or an affiliated company. The Company will not
eliminate existing sub-accounts or combine sub-accounts without the prior
approval of the appropriate state or federal regulatory authorities.
NASL SERIES TRUST
The assets of each available sub-account of the Variable Account are
invested in shares of a corresponding portfolio of the Trust. A description of
each portfolio is set forth below. The Trust is registered under the 1940 Act as
an open-end management investment company. Each of the portfolios is diversified
for purposes of the 1940 Act, except for the Global Government Bond Trust,
Emerging Growth Trust and the five Lifestyle Trusts which are non-diversified.
The Trust receives investment subadvisory services from NASL Financial Services,
Inc.
The Trust currently has fourteen subadvisers who manage all of the
portfolios:
<TABLE>
<CAPTION>
SUBADVISER SUBADVISER TO
- ---------- -------------
<S> <C>
Fred Alger Management, Inc. Small/Mid Cap Trust
Founders Asset Management, Inc. Growth Trust
Worldwide Growth Trust
Balanced Trust
International Small Cap Trust
Oechsle International Advisors, L.P. Global Government Bond Trust
Fidelity Management Trust Company Equity Trust
Conservative Asset Allocation Trust
Moderate Asset Allocation Trust
Aggressive Asset Allocation Trust
Wellington Management Company, LLP Growth and Income Trust
Investment Quality Bond Trust
Salomon Brothers Asset Management, Inc. U.S. Government Securities Trust
</TABLE>
13
<PAGE> 19
<TABLE>
<CAPTION>
SUBADVISER SUBADVISER TO
- ---------- -------------
<S> <C>
Strategic Bond Trust
J.P. Morgan Investment Management Inc. International Growth and Income Trust
T. Rowe Price Associates, Inc. Science & Technology Trust
Blue Chip Growth Trust
Equity-Income Trust
Rowe Price-Fleming International, Inc. International Stock Trust
Morgan Stanley Asset Management Inc. Global Equity Trust
Miller Anderson & Sherrerd, LLP Value Trust
High Yield Trust
Warburg, Pincus Counsellors, Inc. Emerging Growth Trust
Pilgrim Baxter & Associates, Ltd. Pilgrim Baxter Growth Trust
Manufacturers Adviser Corporation Pacific Rim Emerging Markets Trust
Quantitative Equity Trust
Real Estate Securities Trust
Capital Growth Bond Trust
Money Market Trust
Lifestyle Trusts
</TABLE>
The following is a brief description of each portfolio:
The PACIFIC RIM EMERGING MARKETS TRUST seeks long-term growth of
capital by investing in a diversified portfolio that is comprised primarily of
common stocks and equity-related securities of corporations domiciled in
countries in the Pacific Rim region.
The SCIENCE & TECHNOLOGY TRUST seeks long-term growth of capital.
Current income is incidental to the portfolio's objective.
The INTERNATIONAL SMALL CAP TRUST seeks capital appreciation by
investing primarily in securities issued by foreign companies which have total
market capitalization or annual revenues of $1 billion or less. These securities
may represent companies in both established and emerging economies throughout
the world.
The EMERGING GROWTH TRUST seeks maximum capital appreciation by
investing primarily in a portfolio of equity securities of domestic companies.
The Emerging Growth Trust ordinarily will invest at least 65% of its total
assets in common stocks or warrants of emerging growth companies that represent
attractive opportunities for maximum capital appreciation.
The PILGRIM BAXTER GROWTH TRUST seeks capital appreciation by investing
in companies believed by the subadviser to have an outlook for strong earnings
growth and the potential for significant capital appreciation.
The SMALL/MID CAP TRUST seeks long-term capital appreciation by
investing at least 65% of its total assets (except during temporary defensive
periods) in small/mid cap equity securities. As used herein small/mid cap equity
securities are equity securities of companies that, at the time of purchase,
have total market capitalization between $500 million and $5 billion.
The INTERNATIONAL STOCK TRUST seeks long-term growth of capital by
investing primarily in common stocks of established, non-U.S. companies.
The WORLDWIDE GROWTH TRUST seeks long-term growth of capital by
normally investing at least 65% of its total assets in equity securities of
growth companies in a variety of markets throughout the world.
The GLOBAL EQUITY TRUST seeks long-term capital appreciation by
investing primarily in equity securities throughout the world, including U.S.
issuers and emerging markets.
14
<PAGE> 20
The GROWTH TRUST seeks long-term growth of capital by investing at
least 65% of the portfolio's total assets in the common stocks of
well-established, high-quality growth companies that the subadviser believes
have the potential to increase earnings faster than the rest of the market.
The EQUITY TRUST seeks growth of capital by investing primarily in
common stocks of United States issuers and securities convertible into or
carrying the right to buy common stocks.
The QUANTITATIVE EQUITY TRUST seeks to achieve intermediate and
long-term growth through capital appreciation and current income by investing in
common stocks and other equity securities of well established companies with
promising prospects for providing an above average rate of return.
The BLUE CHIP GROWTH TRUST seeks to achieve long-term growth of capital
(current income is a secondary objective) and many of the stocks in the
portfolio are expected to pay dividends.
The REAL ESTATE SECURITIES TRUST seeks to achieve a combination of
long-term capital appreciation and satisfactory current income by investing in
real estate related equity and debt securities.
The VALUE TRUST seeks to realize an above-average total return over a
market cycle of three to five years, consistent with reasonable risk, by
investing primarily in common and preferred stocks, convertible securities,
rights and warrants to purchase common stocks, ADRs and other equity securities
of companies with equity capitalizations usually greater than $300 million.
The INTERNATIONAL GROWTH AND INCOME TRUST seeks long-term growth of
capital and income by investing, under normal circumstances, at least 65% of its
total assets in equity securities of foreign issuers. The portfolio may also
invest in debt securities of corporate or sovereign issuers rated A or higher by
Moody's or S&P or, if unrated, of equivalent credit quality as determined by the
subadviser. Under normal circumstances, the portfolio will be invested
approximately 85% in equity securities and 15% in fixed income securities.
The GROWTH AND INCOME TRUST seeks long-term growth of capital and
income, consistent with prudent investment risk, by investing primarily in a
diversified portfolio of common stocks of United States issuers which the
subadviser believes are of high quality.
The EQUITY-INCOME TRUST seeks to provide substantial dividend income
and also long-term capital appreciation by investing primarily in
dividend-paying common stocks, particularly of established companies with
favorable prospects for both increasing dividends and capital appreciation.
The BALANCED TRUST seeks current income and capital appreciation by
investing in a balanced portfolio of common stocks, U.S. and foreign government
obligations and a variety of corporate fixed-income securities.
The HIGH YIELD TRUST seeks to realize an above-average total return
over a market cycle of three to five years, consistent with reasonable risk, by
investing primarily in high yield debt securities, including corporate bonds and
other fixed-income securities.
The AUTOMATIC ASSET ALLOCATION TRUSTS seek the highest potential total
return consistent with a specified level of risk tolerance -- conservative,
moderate or aggressive -- by investing primarily in the kinds of securities in
which the Equity, Investment Quality Bond, U.S. Government Securities and Money
Market Trusts may invest.
* The AGGRESSIVE ASSET ALLOCATION TRUST seeks the highest total return
consistent with an aggressive level of risk tolerance. This Trust attempts to
limit the decline in portfolio value in very adverse market conditions to 15%
over any three year period.
* The MODERATE ASSET ALLOCATION TRUST seeks the highest total return
consistent with a moderate level of risk tolerance. This Trust attempts to limit
the decline in portfolio value in very adverse market conditions to 10% over any
three year period.
15
<PAGE> 21
* The CONSERVATIVE ASSET ALLOCATION TRUST seeks the highest total
return consistent with a conservative level of risk tolerance. This Trust
attempts to limit the decline in portfolio value in very adverse market
conditions to 5% over any three year period.
The STRATEGIC BOND TRUST seeks a high level of total return consistent
with preservation of capital by giving its subadviser broad discretion to deploy
the portfolio's assets among certain segments of the fixed-income market as the
subadviser believes will best contribute to achievement of the portfolio's
investment objective.
The GLOBAL GOVERNMENT BOND TRUST seeks a high level of total return by
placing primary emphasis on high current income and the preservation of capital
by investing primarily in a global portfolio of high-quality, fixed-income
securities of foreign and United States governmental entities and supranational
issuers.
The CAPITAL GROWTH BOND TRUST seeks to achieve growth of capital by
investing in medium-grade or better debt securities, with income as a secondary
consideration. The Capital Growth Bond Trust differs from most "bond" funds in
that its primary objective is capital appreciation, not income.
The INVESTMENT QUALITY BOND TRUST seeks a high level of current income
consistent with the maintenance of principal and liquidity, by investing
primarily in a diversified portfolio of investment grade corporate bonds and
U.S. Government bonds with intermediate to longer term maturities. The portfolio
may also invest up to 20% of its assets in non-investment grade fixed income
securities.
The U.S. GOVERNMENT SECURITIES TRUST seeks a high level of current
income consistent with preservation of capital and maintenance of liquidity, by
investing in debt obligations and mortgage-backed securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and
derivative securities such as collateralized mortgage obligations backed by such
securities.
The MONEY MARKET TRUST seeks maximum current income consistent with
preservation of principal and liquidity by investing in high quality money
market instruments with maturities of 397 days or less issued primarily by
United States entities.
The LIFESTYLE AGGRESSIVE 1000 TRUST seeks to provide long-term growth
of capital (current income is not a consideration) by investing 100% of the
Lifestyle Trust's assets in other portfolios of the Trust ("Underlying
Portfolios") which invest primarily in equity securities.
The LIFESTYLE GROWTH 820 TRUST seeks to provide long-term growth of
capital with consideration also given to current income by investing
approximately 20% of the Lifestyle Trust's assets in Underlying Portfolios which
invest primarily in fixed income securities and approximately 80% of its assets
in Underlying Portfolios which invest primarily in equity securities.
The LIFESTYLE BALANCED 640 TRUST seeks to provide a balance between a
high level of current income and growth of capital with a greater emphasis given
to capital growth by investing approximately 40% of the Lifestyle Trust's assets
in Underlying Portfolios which invest primarily in fixed income securities and
approximately 60% of its assets in Underlying Portfolios which invest primarily
in equity securities.
The LIFESTYLE MODERATE 460 TRUST seeks to provide a balance between a
high level of current income and growth of capital with a greater emphasis given
to high income by investing approximately 60% of the Lifestyle Trust's assets in
Underlying Portfolios which invest primarily in fixed income securities and
approximately 40% of its assets in Underlying Portfolios which invest primarily
in equity securities.
The LIFESTYLE CONSERVATIVE 280 TRUST seeks to provide a high level of
current income with some consideration also given to growth of capital by
investing approximately 80% of the Lifestyle Trust's assets in Underlying
Portfolios which invest primarily in fixed income securities and approximately
20% of its assets in Underlying Portfolios which invest primarily in equity
securities.
In pursuing the Strategic Bond, High Yield and Investment Quality Bond
Trusts' investment objective, each portfolio expects to invest a portion of its
assets in high yield securities, commonly known as "junk bonds" which also
present a high degree of risk. The risks of these securities include price
volatility and risk of default in the payment of interest and principal. See
"Risk Factors Relating to High Yield Securities" contained in the NASL Series
Trust prospectus before investing in either Trust.
16
<PAGE> 22
In pursuing the Pacific Rim Emerging Markets, International Stock,
Worldwide Growth, International Small Cap, Global Equity, Strategic Bond,
International Growth and Income, High Yield and Global Government Bond Trusts'
investment objective, each portfolio may invest up to 100% of its assets in
foreign securities which may present additional risks. See "Foreign Securities"
in the NASL Series Trust prospectus before investing in any of these Trusts.
If the shares of a Trust portfolio are no longer available for
investment or in the Company's judgment investment in a Trust portfolio becomes
inappropriate in view of the purposes of the Variable Account, the Company may
eliminate the shares of a portfolio and substitute shares of another portfolio
of the Trust or another open-end registered investment company. Substitution may
be made with respect to both existing investments and the investment of future
purchase payments. However, no such substitution will be made without notice to
the contract owner and prior approval of the Commission to the extent required
by the 1940 Act.
The Company will vote shares of the Trust portfolios held in the
Variable Account at meetings of shareholders of the Trust in accordance with
voting instructions received from the persons having the voting interest under
the contracts. The number of portfolio shares for which voting instructions may
be given will be determined by the Company in the manner described below, not
more than 90 days prior to the meeting of the Trust. Trust proxy material will
be distributed to each person having the voting interest under the contract
together with appropriate forms for giving voting instructions. Portfolio shares
held in the Variable Account that are attributable to contract owners and as to
which no timely instructions are received and portfolio shares held in the
Variable Account that are beneficially owned by the Company will be voted by the
Company in proportion to the instructions received.
Prior to the maturity date, the person having the voting interest under
a contract is the contract owner and the number of votes as to each portfolio
for which voting instructions may be given is determined by dividing the value
of the investment account corresponding to the sub-account in which such
portfolio shares are held by the net asset value per share of that portfolio.
After the maturity date, the person having the voting interest under a contract
is the annuitant and the number of votes as to each portfolio for which voting
instructions may be given is determined by dividing the reserve for the contract
allocated to the sub-account in which such portfolio shares are held by the net
asset value per share of that portfolio. Generally, the number of votes tends to
decrease as annuity payments progress since the amount of reserves attributable
to a contract will usually decrease after commencement of annuity payments. The
Company reserves the right to make any changes in the voting rights described
above that may be permitted by the federal securities laws or regulations or
interpretations of these laws or regulations.
A full description of the Trust, including the investment objectives,
policies and restrictions of each of the portfolios, is contained in the
Prospectus for the Trust which accompanies this Prospectus and should be read by
a prospective purchaser before investing.
17
<PAGE> 23
DESCRIPTION OF THE CONTRACT
ACCUMULATION PROVISIONS
PURCHASE PAYMENTS
Purchase payments are paid to the Company at its Annuity Service
Office. Effective October 1, 1996, the minimum initial purchase payment is
$5,000 for non-qualified retirement plans and $2,000 for retirement plans
qualifying for special income tax treatment under the Internal Revenue Code.
Prior to October 1, 1996, the minimum initial purchase payment was $30 with the
additional requirement that at least $300 be paid during the first contract
year. Purchase payments may be made at any time. The Company may provide by
separate agreement for purchase payments to be automatically withdrawn from a
contract owner's bank account on a periodic basis. If a purchase payment would
cause the contract value to exceed $1,000,000 or the contract value already
exceeds $1,000,000, additional purchase payments will be accepted only with the
prior approval of the Company.
The Company may, at its option, cancel a contract at the end of any two
consecutive contract years in which no purchase payments have been made, if both
(i) the total purchase payments made over the life of the contract, less
withdrawals, are less than $2,000; and (ii) the contract value at the end of
such two year period is less than $2,000. Upon cancellation the Company will pay
the contract owner the contract value computed as of the valuation period during
which the cancellation occurs less any debt and less the annual $30
administration fee, if applicable. The amounts paid will be treated as
withdrawals for federal tax purposes and, thus, may be subject to income tax and
to a 10% penalty tax. (See "FEDERAL TAX MATTERS")
Purchase payments are allocated among the investment options in
accordance with the percentages designated by the contract owner in the
application. The contract owner may change the allocation of subsequent purchase
payments at any time upon written notice to the Company or by telephone in
accordance with the Company's telephone transfer procedures.
ACCUMULATION UNITS
The Company will establish an investment account for the contract owner
for each investment option to which such contract owner allocates purchase
payments. Purchase payments are credited to such investment accounts in the form
of accumulation units. The number of accumulation units to be credited to each
investment account is determined by dividing the net purchase payment allocated
to that investment account by the value of an accumulation unit for that
investment account for the valuation period during which the purchase payment is
received at the Company's Annuity Service Office complete with all necessary
information or, in the case of the first purchase payment, pursuant to the
procedures described below.
Initial purchase payments received by mail will usually be credited in
the valuation period during which received at the Annuity Service Office, and in
any event not later than two business days after receipt of a properly completed
application and all information necessary for processing of the application. The
applicant will be informed of any deficiencies in an application if it cannot be
processed and the purchase payment credited within two business days after
receipt. If the deficiencies are not remedied within five business days, the
purchase payment will be returned promptly to the applicant, unless the
applicant specifically consents to the Company's retaining the purchase payment
until all necessary information is received. Initial purchase payments received
by wire transfer from broker-dealers will be credited in the valuation period
during which received where such broker-dealers have made special arrangements
with the Company for the collection and forwarding of contract applications.
VALUE OF ACCUMULATION UNITS
The value of accumulation units will vary from one valuation period to
the next depending upon the investment results of the particular sub-accounts to
which purchase payments are allocated. The value of an accumulation unit for
each sub-account was arbitrarily set at $10 for the first valuation period under
other contracts issued by the Company. The value of an accumulation unit for any
subsequent valuation period is determined by multiplying the value of an
accumulation unit for the immediately preceding valuation period by the net
investment factor for such sub-account (described below) for the valuation
period for which the value is being determined.
NET INVESTMENT FACTOR
The net investment factor is an index used to measure the investment
performance of a sub-account from one valuation period to the next. The net
investment factor for each sub-account for any valuation period is determined by
dividing (a) by (b) and subtracting (c) from the result:
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Where (a) is:
(1) the net asset value per share of a portfolio share held in
the sub-account determined at the end of the current valuation period,
plus
(2) the per share amount of any dividend or capital gain
distributions made by the portfolio on shares held in the sub-account
if the "ex-dividend" date occurs during the current valuation period.
Where (b) is:
the net asset value per share of a portfolio share held in the
sub-account determined as of the end of the immediately preceding
valuation period.
Where (c) is:
a factor representing the charges deducted from the
sub-account on a daily basis for certain administrative expenses, a
portion of the distribution expenses, and mortality and expense risks
fees. Such factor is equal on an annual basis to 1.65% (0.25% for
administrative expenses, 0.15% for distribution expenses and 1.25% for
mortality and expense risks).
The net investment factor may be greater or less than or equal to one;
therefore, the value of an accumulation unit may increase, decrease or remain
the same.
TRANSFERS AMONG INVESTMENT OPTIONS
Before the maturity date the contract owner may transfer amounts among
the investment options at any time and without charge upon written notice to the
Company or by telephone if the contract owner authorizes the Company in writing
to accept telephone transfer requests. Accumulation units will be canceled from
the investment account from which amounts are transferred and credited to the
investment account to which amounts are transferred. The Company will effect
such transfers so that the contract value on the date of the transfer will not
be affected by the transfer. The contract owner must transfer at least $300 or,
if less, the entire value of the investment account. If after the transfer the
amount remaining in the investment account is less than $100, then the Company
will transfer the entire amount instead of the requested amount. The Company
reserves the right to limit, upon notice, the maximum number of transfers a
contract owner may make to one per month or six at any time within a contract
year. In addition, the Company reserves the right to defer the transfer
privilege at any time that the Company is unable to purchase or redeem shares of
the Trust portfolios. The Company also reserves the right to modify or terminate
the transfer privilege at any time in accordance with applicable law.
MAXIMUM NUMBER OF INVESTMENT OPTIONS
Due to current administrative capabilities, a contract owner is limited
to a maximum of 17 investment options (including all fixed account investment
options) during the period prior to the maturity date of the contract (the
"Contract Period"). In calculating this limit for each contract owner,
investment options to which the contract owner has allocated purchased payments
at any time during the Contract Period will be counted toward the 17 maximum
even if the contract owner no longer has contract value allocated to these
investment options.
TELEPHONE TRANSACTIONS
Contract owners are permitted to request transfers/redemptions by
telephone. The Company will not be liable for following instructions
communicated by telephone that it reasonably believes to be genuine. To be
permitted to request a transfer/redemption by telephone, a contract owner must
elect the option on the Application. (If a contract owner does not initially
elect an option in the Application form, they may request authorization by
executing an appropriate authorization form provided by the Company upon
request.) The Company will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine and may only be liable for
any losses due to unauthorized or fraudulent instructions where it fails to
employ its procedures properly. Such procedures include the following. Upon
telephoning a request, contract owners will be asked to provide their account
number, and if not available, their social security number. For the contract
owner's and Company's protection, all conversations with contract owners will be
tape recorded. All telephone transactions will be followed by a confirmation
statement of the transaction.
SPECIAL TRANSFER SERVICES - DOLLAR COST AVERAGING
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The Company administers a Dollar Cost Averaging ("DCA") program which
enables a contract owner to pre-authorize a periodic exercise of the contractual
transfer rights described above. Contract owners entering into a DCA agreement
instruct the Company to transfer monthly a predetermined dollar amount from any
Sub-account or the one year fixed account investment option to other
Sub-accounts until the amount in the Sub-account from which the transfer is made
or the one year fixed account investment option is exhausted. The DCA program is
generally suitable for contract owners making a substantial deposit to the
contract and who desire to control the risk of investing at the top of a market
cycle. The DCA program allows such investments to be made in equal installments
over time in an effort to reduce such risk. Contract owners interested in the
DCA program may elect to participate in the program on the contract application
or by separate application. Contract owners may obtain a separate application
and full information concerning the program and its restrictions from their
securities dealer or the Annuity Service Office.
ASSET REBALANCING PROGRAM
The Company administers an Asset Rebalancing Program which enables a
contract owner to indicate to the Company the percentage levels he or she would
like to maintain in particular portfolios. The contract owner's contract value
will be automatically rebalanced pursuant to the schedule described below to
maintain the indicated percentages by transfers among the portfolios. The entire
contract value must be included in the Asset Rebalancing Program. Other
investment programs, such as the DCA program, or other transfers or withdrawals
may not work in concert with the Asset Rebalancing Program. Therefore, contract
owners should monitor their use of these other programs and any other transfers
or withdrawals while the Asset Rebalancing Program is being used. Contract
owners interested in the Asset Rebalancing Program may obtain a separate
application and full information concerning the program and its restrictions
from their securities dealer or the Annuity Service Office.
For rebalancing programs begun on or after October 1, 1996 asset
rebalancing will only be permitted on the following time schedules:
(i) quarterly on the 25th day of the last month of the quarter (or the
next business day if the 25th is not a business day);
(ii) semi-annually on June 25th or December 26th (or the next business
day if these dates are not business days); or
(iii) annually on December 26th (or the next business day if December
26th is not a business day).
Rebalancing will continue to take place on the last business day of every
calendar quarter for rebalancing programs begun prior to October 1, 1996.
WITHDRAWALS
Prior to the earlier of the maturity date or the death of the
annuitant, the contract owner may withdraw all or a portion of the contract
value upon written request, complete with all necessary information to the
Company's Annuity Service Office. For certain qualified contracts, exercise of
the withdrawal right may require the consent of the qualified plan participant's
spouse under the Internal Revenue Code and regulations promulgated by the
Treasury Department. In the case of a total withdrawal, the Company will pay the
contract value as of the date of receipt of the request at its Annuity Service
Office, less any applicable annual $30 administration fee, any debt and any
applicable withdrawal charge, and the contract will be canceled. In the case of
a partial withdrawal, the Company will pay the amount requested and cancel that
number of accumulation units credited to each investment account necessary to
equal the amount withdrawn from each investment account plus any applicable
withdrawal charge deducted from such investment account. (See "CHARGES AND
DEDUCTIONS")
When making a partial withdrawal, the contract owner should specify the
investment options from which the withdrawal is to be made. The amount requested
from an investment option may not exceed the value of that investment option
less any applicable withdrawal charge. If the contract owner does not specify
the investment options from which a partial withdrawal is to be made, the
withdrawal will be taken pro rata from the investment options: taking from each
investment option an amount which bears the same relationship to the total
amount withdrawn as the value of such investment option bears to the total
investment account values.
There is no limit on the frequency of partial withdrawals; however, the
amount withdrawn must be at least $300 or, if less, the entire balance in the
investment option. If after the withdrawal (and deduction of any withdrawal
charge) the amount remaining in the investment option is less than $100, the
Company will treat the partial withdrawal as a withdrawal of the entire amount
held in the investment option. If a partial withdrawal plus any applicable
withdrawal charge would reduce the contract value to less than $300, the Company
will treat the partial withdrawal as a total withdrawal of the contract value.
The amount of any withdrawal will be paid promptly, and in any event
within seven days of receipt of the request, complete with all necessary
information at the Company's Annuity Service Office, except that the Company
reserves the right to defer the right of withdrawal
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or postpone payments for any period when: (1) the New York Stock Exchange is
closed (other than customary weekend and holiday closings), (2) trading on the
New York Stock Exchange is restricted, (3) an emergency exists as a result of
which disposal of securities held in the Variable Account is not reasonably
practicable or it is not reasonably practicable to determine the value of the
Variable Account's net assets, or (4) the Commission, by order, so permits for
the protection of security holders; provided that applicable rules and
regulations of the Commission shall govern as to whether the conditions
described in (2) and (3) exist.
Withdrawals from the contract may be subject to income tax and a 10%
penalty tax. Withdrawals are permitted from contracts issued in connection with
Section 403(b) qualified plans only under limited circumstances. (See "FEDERAL
TAX MATTERS")
Telephone Redemptions. The contract owner may request the option to
withdraw a portion of the contract value by telephone by completing the
application described under "Telephone Transactions" above. The Company reserves
the right to impose maximum withdrawal amounts and procedural requirements
regarding this privilege. For additional information on Telephone Redemptions
see "Telephone Transactions" above.
SPECIAL WITHDRAWAL SERVICES - SYSTEMATIC WITHDRAWAL PLAN
The Company administers a Systematic Withdrawal Plan ("SWP") which
enables a contract owner to pre-authorize a periodic exercise of the contractual
withdrawal rights described above. Contract owners entering into a SWP agreement
instruct the Company to withdraw a level dollar amount from specified investment
options on a periodic basis. The total of SWP withdrawals in a contract year is
limited to not more than 10% of the purchase payments made to ensure that no
withdrawal charge will ever apply to a SWP withdrawal. If an additional
withdrawal is made from a contract participating in SWP, the SWP will terminate
automatically and may be reinstated only on or after the next contract
anniversary pursuant to a new application. SWP is not available to contracts
participating in the dollar cost averaging program or for which purchase
payments are being automatically deducted from a bank account on a periodic
basis. SWP withdrawals will be free of withdrawal charges. SWP withdrawals may,
however, be subject to income tax and a 10% penalty tax. (See "FEDERAL TAX
MATTERS") Contract owners interested in SWP may elect to participate in this
program on the contract application or by separate application. Contract owners
may obtain a separate application and full information concerning the program
and its restrictions from their securities dealer or the Annuity Service Office.
LOANS
The Company offers a loan privilege only to owners of contracts issued
in connection with Section 403(b) qualified plans that are not subject to Title
I of ERISA. Owners of such contracts may obtain loans using the contract as the
only security for the loan. Loans are subject to provisions of the Code and to
applicable retirement program rules (collectively, "loan rules"). Tax advisers
and retirement plan fiduciaries should be consulted prior to exercising loan
privileges.
Under the terms of the contract, the maximum loan value is equal to 80%
of the contract value, although loan rules may serve to reduce such maximum loan
value in some cases. The amount available for a loan at any given time is the
loan value less any outstanding debt. Debt equals the amount of any loans plus
accrued interest. Loans will be made only upon written request from the owner.
The Company will make loans within seven days of receiving a properly completed
loan application (applications are available from the Annuity Service Office),
subject to postponement under the same circumstances that payment of withdrawals
may be postponed. (See "WITHDRAWALS")
When an owner requests a loan, the Company will reduce the owner's
investment in the investment accounts and transfer the amount of the loan to the
loan account, a part of the Company's general account. The owner may designate
the investment accounts from which the loan is to be withdrawn. Absent such a
designation, the amount of the loan will be withdrawn from the investment
accounts in accordance with the rules for making partial withdrawals. (See
"WITHDRAWALS") The contract provides that owners may repay contract debt at any
time. Under applicable tax rules, loans generally must be repaid within five
years, repayments must be made at least quarterly and repayments must be made in
substantially equal amounts. When a loan is repaid, the amount of the repayment
will be transferred from the loan account to the investment accounts. The owner
may designate the investment accounts to which a repayment is to be allocated.
Otherwise, the repayment will be allocated in the same manner as the owner's
most recent purchase payment. On each contract anniversary, the Company will
transfer from the investment accounts to the loan account the amount by which
the debt on the contract exceeds the balance in the loan account.
The Company charges interest of 6% per year on contract loans. Loan
interest is payable in arrears and, unless paid in cash, the accrued loan
interest is added to the amount of the debt and bears interest at 6% as well.
The Company credits interest with respect to amounts held in the loan account at
a rate of 4% per year. Consequently, the net cost of loans under the contract is
2%. If on any date debt under a contract exceeds the contract value, the
contract will be in default. In such case the owner will receive a notice
indicating the
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payment needed to bring the contract out of default and will have a thirty-one
day grace period within which to pay the default amount. If the required payment
is not made within the grace period, the contract may be foreclosed (terminated
without value).
The amount of any debt will be deducted from the minimum death benefit.
(See "DEATH BENEFIT BEFORE MATURITY DATE") In addition, debt, whether or not
repaid, will have a permanent effect on the contract value because the
investment results of the investment accounts will apply only to the unborrowed
portion of the contract value. The longer debt is outstanding, the greater the
effect is likely to be. The effect could be favorable or unfavorable. If the
investment results are greater than the rate being credited on amounts held in
the loan account while the debt is outstanding, the contract value will not
increase as rapidly as it would have if no debt were outstanding. If investment
results are below that rate, the contract value will be higher than it would
have been had no debt been outstanding.
DEATH BENEFIT BEFORE MATURITY DATE
The following discussion applies principally to contracts that are not
issued in connection with qualified plans, i.e., a "non-qualified contract." The
requirements of the tax law applicable to qualified plans, and the tax treatment
of amounts held and distributed under such plans, are quite complex.
Accordingly, a prospective purchaser of the contract to be used in connection
with a qualified plan should seek competent legal and tax advice regarding the
suitability of the contract for the situation involved and the requirements
governing the distribution of benefits, including death benefits, from a
contract used in the plan. In particular, a prospective purchaser who intends to
use the contract in connection with a qualified plan should consider that the
contract provides a minimum death benefit (described below) that could be
characterized as an incidental death benefit. There are limits on the amount of
incidental benefits that may be provided under certain qualified plans and the
provision of such benefits may result in currently taxable income to plan
participants. (See "FEDERAL TAX MATTERS".)
Death of Last Surviving Annuitant (Where the Annuitant Was Not an Owner)
The Company will pay the minimum death benefit, less any debt, to the
beneficiary if (1) the annuitant dies before the maturity date, (2) the
annuitant is not an owner, (3) there is no surviving co-annuitant, and (4) no
owner of the contract is a non-natural person. (If any owner of the contract is
a non-natural person, the death or change of any annuitant is treated as the
death of an owner -- see "Death of Owner") The beneficiary (1) may elect to
receive payment (either as a lump sum or in accordance with any annuity option
described in the contract) or (2) may elect to continue the contract, as its
owner, with the contract value on the date due proof of death and all required
claim forms are received, equal to the minimum death benefit. An election to
receive the minimum death benefit under an annuity option must be made within 60
days after the date on which the death benefit first becomes payable. (See
"Annuity Options") (In general, a beneficiary who continues the contract will
nonetheless be treated for federal income tax purposes as if he or she had
received the minimum death benefit.)
Death of Owner
Deceased Owner (Who was the Last-Surviving Annuitant): The Company will
pay the minimum death benefit, less any debt, to the beneficiary if (1) an owner
dies before the maturity date, (2) the deceased owner is an annuitant, and (3)
there is no surviving co-annuitant. If the contract is a non-qualified contract,
after the owner's death, the beneficiary's entire interest must be distributed
within five years unless (1) the beneficiary elects to receive his or her
interest as an annuity which begins within one year of the owner's death and is
paid over the beneficiary's life or over a period not extending beyond the
beneficiary's life expectancy or (2) the beneficiary is the deceased owner's
surviving spouse and elects to continue the contract, as its owner, with the
contract value on the date due proof of death and all required claim forms are
received, equal to the minimum death benefit. An election to receive the minimum
death benefit as an annuity must be made within 60 days after the date on which
the death benefit first becomes payable. (See "Annuity Options") If the spouse
continues the contract, the distribution rules applicable when a contract owner
dies generally will apply when that spouse, as the owner, dies. For purposes of
this paragraph, in determining the minimum death benefit, withdrawal charges
(applicable when an annuitant either dies after the first of the month following
his or her 85th birthday or when the annuitant had attained age 81 or greater on
the contract date -- see "Minimum Death Benefit") will be taken into account,
but only when the minimum death benefit is paid and only if such charges would
have applied if the payment had been made to the deceased owner at that time.
Deceased Owner (Who was Not the Last-Surviving Annuitant and There Are
No Surviving Owners): If (1) an owner dies before the maturity date, (2) any
annuitant survives, and (3) there are no surviving owners, the Company will
transfer the interest in the contract to the successor owner. If the contract is
a non-qualified contract, after the owner's death, the successor owner's entire
interest in the contract must be distributed within five years unless (1) the
successor owner elects to receive payment of the interest in the contract as an
annuity which begins within one year of the owner's death and is paid over the
successor owner's life or over a period not extending beyond the successor
owner's life expectancy or (2) the successor owner is the deceased owner's
surviving spouse and elects to continue the contract, as its owner, with the
contract value on the date due proof of death and all required claim forms are
received, equal to the interest in the contract. An election to receive the
interest in the contract as an annuity must be made within 60 days after the
date on which the death benefit first becomes payable. (See "Annuity Options")
If the spouse continues the contract, the distribution rules applicable when a
contract owner dies
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generally will apply when that spouse, as the owner, dies. If the deceased Owner
had not attained age 81 on the contract date, the interest in the contract
equals the contract value. If the deceased Owner had attained age 81 on the
contract date, the interest in the contract also equals the contract value, but
such interest may be subject to applicable withdrawal charges when any amounts
are actually paid. (See "Withdrawals") The successor owner's right to the
interest in the contract does not affect the annuitant designations in the
contract, although the successor owner may change such designations after
acquiring the interest in the contract.
Deceased Owner (Who was Not the Last-Surviving Annuitant and There Are
Surviving Owners): If (1) an owner dies before the maturity date, (2) any
annuitant survives, and (3) there is a surviving owner, the Company will
transfer the interest in the contract to the surviving owner. The amount of this
interest and the rights and restrictions attendant to this transfer are the same
as those described in the immediately preceding paragraph, except that
"surviving owner" should be substituted for "successor owner," wherever these
terms appear.
Non-Natural Owners: If any owner of a non-qualified contract is not an
individual, the death or change of any annuitant will be treated as the death of
an owner (who was not the last-surviving annuitant), unless the last-surviving
annuitant has actually died in which case the death will be treated as the death
of an owner (who is the last-surviving annuitant).
Application of Distributed Amounts Towards the Purchase of a New
Contract: A beneficiary, successor owner, or surviving owner, as the case may
be, may apply amounts required to be distributed towards the purchase of a new
contract. In general, if such distributed amounts are so applied, the
beneficiary, successor owner, or surviving owner will be treated for federal
income tax purposes as if he or she had received these distributed amounts.
Minimum Death Benefit
If the last surviving annuitant dies on or before the first of the
month following his or her 85th birthday and had an attained age of less than 81
years on the contract date, the minimum death benefit will be equal to the
greater of: (a) the contract value on the date due proof of death and all
required claim forms are received at the Company's Annuity Service Office, or
(b) the excess of (i) the sum of each purchase payment accumulated daily, at the
equivalent of 5% per year, starting on the date each purchase payment is
allocated to the Contract, with a maximum accumulation of two times each
purchase payment, over (ii) the sum of each withdrawal or annuitized amount,
including any applicable withdrawal charges, accumulated daily at a rate
equivalent to 5% per year, starting as of the date of each such withdrawal or
annuitization, with a maximum accumulation of two times each such withdrawal or
annuitization amount. If the last surviving annuitant dies after the first of
the month following his or her 85th birthday and had an attained age of less
than 81 years on the contract date, the minimum death benefit will be equal to
the greater of: (a) the contract value on the date due proof of death and all
required claim forms are received at the Company's Annuity Service Office, or
(b) the excess of (i) the sum of all purchase payments over (ii) the sum of any
amounts deducted in connection with partial withdrawals. If the last surviving
annuitant dies and the Annuitant had an attained age of 81 or greater on the
contract date, the minimum death benefit payable on due proof of death and
receipt of all required claim forms will equal the amount payable on total
withdrawal.
Death benefits will be paid within seven days of receipt of due proof
of death and all required claim forms are received at the Company's Annuity
Service Office, subject to postponement under the same circumstances that
payment of withdrawals may be postponed. (See "WITHDRAWALS")
ANNUITY PROVISIONS
GENERAL
The proceeds of the contract payable on death, withdrawal or the
contract maturity date may be applied to the annuity options described below,
subject to the distribution of death benefit provisions. (See "DEATH BENEFIT
BEFORE MATURITY DATE")
Generally, annuity benefits under the contract will begin on the
maturity date. The maturity date is the date specified on the contract
specifications page, unless changed. If no date is specified, the maturity date
is the maximum maturity date described below. The contract owner may specify a
different maturity date at any time by written request at least one month before
both the previously specified and the new maturity date. The maximum maturity
date, subject to applicable state law, will be the later of the first day of the
month following the annuitant's 85th birthday or the first month following the
tenth contract anniversary. Distributions from qualified contracts may be
required before the maturity date. The Company may at its discretion permit an
extension of the maturity date. See Appendix C for contracts issued in
Pennsylvania. Maturity dates which occur at advanced ages, e.g., past age 85,
may in some circumstances have adverse income tax consequences. See "FEDERAL TAX
MATTERS."
The contract owner may select the frequency of annuity payments.
However, if the contract value at the maturity date is such that a monthly
payment would be less than $20, the Company may pay the contract value, less any
debt, in one lump sum to the annuitant on the maturity date.
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ANNUITY OPTIONS
Annuity benefits are available under the contract on a fixed or
variable basis or any combination of fixed and variable bases. Upon purchase of
the contract, and on or before the maturity date, the contract owner may select
one or more of the annuity options described below on a fixed and/or variable
basis (except Option 5 which is available on a fixed basis only) or choose an
alternate form of settlement acceptable to the Company. If on the maturity date
you have not selected an annuity option, we will provide variable annuity
payments which will continue for ten years or for the life of the annuitant if
longer. Such variable payments will be based on the allocation of your contract
value among the sub-accounts at the time the first variable annuity payment is
determined as described under "Determination of Amount of the First Annuity
Payment" section below. Treasury Department regulations may preclude the
availability of certain annuity options in connection with certain qualified
contracts.
The following annuity options are guaranteed in the contract.
Option 1(a): Non-Refund Life Annuity - An annuity with payments
during the lifetime of the annuitant. No payments are
due after the death of the annuitant. Since there is
no guarantee that any minimum number of payments will
be made, an annuitant may receive only one payment if
the annuitant dies prior to the date the second
payment is due.
Option 1(b): Life Annuity with Payments Guaranteed for 10 Years -
An annuity with payments guaranteed for 10 years and
continuing thereafter during the lifetime of the
annuitant. Since payments are guaranteed for 10
years, annuity payments will be made to the end of
such period if the annuitant dies prior to the end of
the tenth year.
Option 2(a): Joint & Survivor Non-Refund Life Annuity - An annuity
with payments during the lifetimes of the annuitant
and a designated co-annuitant. No payments are due
after the death of the last survivor of the annuitant
and co-annuitant. Since there is no guarantee that
any minimum number of payments will be made, an
annuitant or co-annuitant may receive only one
payment if the annuitant and co-annuitant die prior
to the date the second payment is due.
Option 2(b): Joint & Survivor Life Annuity with Payments
Guaranteed for 10 Years - An annuity with payments
guaranteed for 10 years and continuing thereafter
during the lifetimes of the annuitant and a
designated co-annuitant. Since payments are
guaranteed for 10 years, annuity payments will be
made to the end of such period if both the annuitant
and the co-annuitant die prior to the end of the
tenth year.
In addition to the foregoing annuity options which the Company is
contractually obligated to offer at all times, the Company currently offers the
following annuity options. The Company may cease offering the following annuity
options at any time and may offer other annuity options in the future.
Option 3: Life annuity with Payments Guaranteed for 5, 15 or 20
Years - An Annuity with payments guaranteed for 5, 15
or 20 years and continuing thereafter during the
lifetime of the annuitant. Since payments are
guaranteed for the specific number of years, annuity
payments will be made to the end of the last year of
the 5, 15 or 20 year period.
Option 4: Joint & Two-Thirds Survivor Non-Refund Life Annuity -
An annuity with full payments during the joint
lifetime of the annuitant and a designated
co-annuitant and two-thirds payments during the
lifetime of the survivor. Since there is no guarantee
that any minimum number of payments will be made, an
annuitant or co-annuitant may receive only one
payment if the annuitant and co-annuitant die prior
to the date the second payment is due.
Option 5: Period Certain Only Annuity for 5, 10, 15 or 20 years
- An annuity with payments for a 5, 10, 15 or 20 year
period and no payments thereafter.
DETERMINATION OF AMOUNT OF THE FIRST VARIABLE ANNUITY PAYMENT
The first variable annuity payment is determined by applying that
portion of the contract value used to purchase a variable annuity, measured as
of a date not more than ten business days prior to the maturity date (minus any
applicable premium taxes), to the annuity tables contained in the contract. (The
amount of the first and all subsequent fixed annuity payments is determined on
the same basis using the portion of the contract value used to purchase a fixed
annuity.) The rates contained in such tables depend upon the annuitant's age, as
adjust-
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ed, and annuity option selected. Under such tables, the longer the life
expectancy of the annuitant under any life annuity option or the duration of any
period for which payments are guaranteed under the option, the smaller will be
the amount of the first monthly variable annuity payment. The tables are based
on the 1983-a Individual Annuitant Mortality Table projected at Scale G, and
reflect an assumed interest rate of 4% per year.
ANNUITY UNITS AND THE DETERMINATION OF SUBSEQUENT VARIABLE ANNUITY PAYMENTS
Variable annuity payments subsequent to the first will be based on the
investment performance of the sub-accounts selected. The amount of such
subsequent payments is determined by dividing the amount of the first annuity
payment from each sub-account by the annuity unit value of such sub-account (as
of the same date the contract value to effect the annuity was determined) to
establish the number of annuity units which will thereafter be used to determine
payments. This number of annuity units for each sub-account is then multiplied
by the appropriate annuity unit value as of a uniformly applied date not more
than ten business days before the annuity payment is due, and the resulting
amounts for each sub-account are then totaled to arrive at the amount of the
payment to be made. The number of annuity units remains constant during the
annuity payment period.
The value of an annuity unit for each sub-account for any valuation
period is determined by multiplying the annuity unit value for the immediately
preceding valuation period by the net investment factor for that sub-account
(see "NET INVESTMENT FACTOR") for the valuation period for which the annuity
unit value is being calculated and by a factor to neutralize the assumed
interest rate.
A 4% assumed interest rate is built into the annuity tables in the
contract used to determine the first variable annuity payment. A higher
assumption would mean a larger first annuity payment, but more slowly rising
subsequent payments when actual investment performance exceeds the assumed rate,
and more rapidly falling subsequent payments when actual investment performance
is less than the assumed rate. A lower assumption would have the opposite
effect. If the actual net investment performance is 4% annually, annuity
payments will be level.
TRANSFERS AFTER MATURITY DATE
Once variable annuity payments have begun, the contract owner may
transfer all or part of the investment upon which such payments are based from
one sub-account to another. Transfers will be made upon notice to the Company at
least 30 days before the due date of the first annuity payment to which the
change will apply. Transfers after the maturity date will be made by converting
the number of annuity units being transferred to the number of annuity units of
the sub-account to which the transfer is made, so that the next annuity payment
if it were made at that time would be the same amount that it would have been
without the transfer. Thereafter, annuity payments will reflect changes in the
value of the new annuity units. The Company reserves the right to limit, upon
notice, the maximum number of transfers a contract owner may make per contract
year to four. Once annuity payments have commenced, no transfers may be made
from a fixed annuity option to a variable annuity option or from a variable
annuity option to a fixed annuity option. In addition, the Company reserves the
right to defer the transfer privilege at any time that the Company is unable to
purchase or redeem shares of the Trust portfolios. The Company also reserves the
right to modify or terminate the transfer privilege at any time in accordance
with applicable law.
DEATH BENEFIT ON OR AFTER MATURITY DATE
If annuity payments have been selected based on an annuity option
providing for payments for a guaranteed period, and the annuitant dies on or
after the maturity date, the Company will make the remaining guaranteed payments
to the beneficiary. Any remaining payments will be made as rapidly as under the
method of distribution being used as of the date of the annuitant's death. If no
beneficiary is living, the Company will commute any unpaid guaranteed payments
to a single sum (on the basis of the interest rate used in determining the
payments) and pay that single sum to the estate of the last to die of the
annuitant and the beneficiary.
OTHER CONTRACT PROVISIONS
TEN DAY RIGHT TO REVIEW
The contract owner may cancel the contract by returning it to the
Company's Annuity Service Office or agent at any time within 10 days after
receipt of the contract. Within 7 days of receipt of the contract by the
Company, the Company will pay to the contract owner an amount equal to the sum
of (i) the difference between the purchase payments paid and the net purchase
payments and (ii) the contract value computed at the end of the valuation period
during which the contract is received by the Company. No withdrawal charge is
imposed upon return of the contract within the ten day right to review period.
The ten day right to review may vary in certain states in order to comply with
the requirements of insurance laws and regulations in such states. When the
contract is issued as an individual retirement annuity under Internal Revenue
Code Section 408, during the first 7 days of the 10 day period, the Company will
return all purchase payments if this is greater than the amount otherwise
payable.
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OWNERSHIP
The contract owner is the person entitled to exercise all rights under
the contract. Prior to the maturity date, the contract owner is the person
designated in the application or as subsequently named. On and after the
maturity date, the annuitant is the contract owner, and after the death of the
annuitant, the beneficiary is the contract owner.
In the case of non-qualified contracts, ownership of the contract may
be changed or the contract collaterally assigned at any time during the lifetime
of the annuitant prior to the maturity date, subject to the rights of any
irrevocable beneficiary. Assigning a contract, or changing the ownership of a
contract, may be treated as a distribution of the contract value for Federal tax
purposes. (See "FEDERAL TAX MATTERS".) Any change of ownership or assignment
must be made in writing. Any change must be approved by the Company. Any
assignment and any change, if approved, will be effective as of the date on
which written. The Company assumes no liability for any payments made or actions
taken before a change is approved or assignment is accepted or responsibility
for the validity or sufficiency of any assignment.
In the case of qualified contracts, ownership of the contract generally
may not be transferred except by the trustee of an exempt employees' trust which
is part of a retirement plan qualified under Section 401 of the Internal Revenue
Code. Subject to the foregoing, a qualified contract may not be sold, assigned,
transferred, discounted or pledged as collateral for a loan or as security for
the performance of an obligation or for any other purpose to any person other
than the Company.
BENEFICIARY
The beneficiary is the person, persons or entity designated in the
application or as subsequently named. The beneficiary may be changed during the
lifetime of the annuitant subject to the rights of any irrevocable beneficiary.
Any change must be made in writing and approved by the Company and, if approved,
will be effective as of the date on which written. The Company assumes no
liability for any payments made or actions taken before the change is approved.
Prior to the maturity date, if no beneficiary survives the annuitant, the
contract owner or the contract owner's estate will be the beneficiary. The
interest of any beneficiary is subject to that of any assignee. In the case of
certain qualified contracts, regulations promulgated by the Treasury Department
prescribe certain limitations on the designation of a beneficiary.
MODIFICATION
The contract may not be modified by the Company without the consent of
the contract owner, except as may be required to make it conform to any law or
regulation or ruling issued by a governmental agency or to improve the rights
and/or benefits under the contract.
COMPANY APPROVAL
The Company reserves the right to accept or reject any contract
application at its sole discretion.
MISSTATEMENT AND PROOF OF AGE, SEX OR SURVIVAL
The Company may require proof of age, sex or survival of any person
upon whose age, sex or survival any payment depends. If the age or sex of the
annuitant has been misstated, the benefits will be those that would have been
provided for the annuitant's correct age and sex. If the Company has made
incorrect annuity payments, the amount of any underpayment will be paid
immediately and the amount of any overpayment will be deducted from future
annuity payments.
FIXED ACCOUNT INVESTMENT OPTION*
Securities Registration. Due to certain exemptive and exclusionary
provisions, interests in the one year fixed account investment option are not
registered under the Securities Act of 1933, as amended, ("1933 Act") and the
Company's general account is not registered as an investment company under the
1940 Act. Accordingly, neither interests in the one year fixed account
investment option nor the general account are subject to the provisions or
restrictions of the 1933 Act or the 1940 Act and the staff of the Commission has
not reviewed the disclosures in the Prospectus relating thereto. Disclosures
relating to interests in the fixed account investment option and the general
account, however, may be subject to certain generally applicable provisions of
the federal securities laws relating to the accuracy of statements made in a
registration statement.
Guarantee. Pursuant to a Guarantee Agreement dated March 31, 1996,
(originally entered into by NAL and assumed by Manulife in the merger),
Manulife, the ultimate parent of the Company, unconditionally guarantees to the
Company on behalf of
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and for the benefit of the Company and owners of fixed annuity contracts issued
by the Company that it will, on demand, make funds available to the Company for
the timely payment of contractual claims under fixed annuity contracts issued
after June 27, 1984. This Guarantee covers the fixed portion of the contracts
described by this Prospectus. This Guarantee may be terminated by Manulife on
notice to the Company. Termination will not affect Manulife's continuing
liability with respect to all fixed annuity contracts issued prior to the
termination of the Guarantee except if: (i) the liability to pay contractual
claims under the contracts is assumed by another insurer or (ii) the Company is
sold and the buyer's guarantee is substituted for the Manulife guarantee.
Reinsurance. Effective June 30, 1995, the Company entered into a
Reinsurance Agreement with Peoples Security Life Insurance Company ("Peoples")
pursuant to which Peoples reinsures certain amounts with respect to the fixed
account portion of the contract described in this Prospectus. Under this
Reinsurance Agreement, the Company remains liable for the contractual
obligations of the contracts' fixed account and Peoples agrees to reimburse the
Company for certain amounts and obligations in connection with the fixed
account. Peoples contractual liability runs solely to the Company, and no
contract owner shall have any right of action against Peoples. Peoples is a
wholly-owned subsidiary of Louisville, Kentucky based Providian Corporation, a
diversified financial services corporation.
Investment Option. A one year fixed account investment option is
available under the contract. Under the one year fixed account investment
option, the Company guarantees the principal value of purchase payments and the
rate of interest credited to the investment account for the term of the
guarantee period. The portion of the contract value in the one year fixed
account investment option and monthly annuity payments, if selected on a fixed
basis, will reflect such interest and principal guarantees. The guaranteed
interest rates on new amounts allocated or transferred to a fixed investment
account are determined from time-to-time by the Company in accordance with
market conditions. In no event will the guaranteed rate of interest be less than
3%. Once an interest rate is guaranteed for a fixed investment account, it is
guaranteed for the duration of the guarantee period and may not be changed by
the Company.
Investment Accounts. Contract owners may allocate purchase payments, or
make transfers from the variable investment options, to the one year fixed
account investment option at any time prior to the maturity date. The Company
establishes a separate investment account each time the contract owner allocates
or transfers amounts to the fixed account investment option, except that amounts
allocated or transferred to the fixed account investment option on the same day
will establish a single investment account. Amounts may not be allocated to a
fixed account investment option that would extend the guarantee period beyond
the maturity date.
Renewals. At the end of a guarantee period, the contract owner may
establish a new investment account with a one year guarantee period at the then
current interest rate or transfer the amounts to a variable account investment
option, all without the imposition of any charge. In the case of renewals within
one year of the maturity date, the only fixed account investment option
available is to have interest accrued up to the maturity date at the then
current interest rate for one year guarantee periods.
If the contract owner does not specify the renewal option desired, the
Company will select the one year fixed account investment option. In the case of
a renewal within one year of the maturity date, the Company will credit interest
up to the maturity date at the then current interest rate for one year guarantee
periods.
Transfers. Prior to the maturity date, the contract owner may transfer
amounts from the fixed account investment option to the variable account
investment options at the end of the guaranteed period; however, amounts may be
transferred prior to the end of the guarantee period pursuant to the Dollar Cost
Averaging program.
Where there are multiple investment accounts within the one year fixed
account investment option, amounts must be transferred from the one year fixed
account investment option on a first-in-first-out basis.
Withdrawals. The contract owner may make total and partial withdrawals
of amounts held in the one year fixed account investment option at any time
prior to the maturity date or his or her death. Withdrawals from the fixed
account investment option will be made in the same manner and be subject to the
same limitations as set forth under "WITHDRAWALS" plus the following provisions
also apply to withdrawals from the fixed account investment option: (1) the
Company reserves the right to defer payment of amounts withdrawn from the fixed
account investment option for up to six months from the date it receives the
written withdrawal request (if a withdrawal is deferred for more than 30 days
pursuant to this right, the Company will pay interest on the amount deferred at
a rate not less than 3% per year (or such higher rate as may be required by the
applicable state or jurisdiction)); and (2) if there are multiple investment
accounts under the fixed account investment option, amounts must be withdrawn
from such accounts on a first-in-first-out basis.
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If the contract owner does not specify the investment options from
which a partial withdrawal is to be taken, a partial withdrawal will be taken
from the variable account investment options until exhausted and then from the
one year fixed account investment option.
Withdrawals from the contract may be subject to income tax and a 10%
penalty tax. Withdrawals are permitted from contracts issued in connection with
Section 403(b) qualified plans only under limited circumstances. (See "FEDERAL
TAX MATTERS" below.)
Loans. The Company offers a loan privilege only to owners of contracts
issued in connection with Section 403(b) qualified plans that are not subject to
Title I of ERISA. Owners of such contracts may obtain loans using the contract
as the only security for the loan. Owners of such contracts may borrow amounts
allocated to the fixed investment account in the same manner and subject to the
same limitations as set forth under "LOANS" above.
Fixed Annuity Options. Subject to the distribution of death benefits
provisions (see "DEATH BENEFIT BEFORE MATURITY DATE" above), on death,
withdrawal or the maturity date of the contract, the proceeds may be applied to
a fixed annuity option. (See "ANNUITY OPTIONS" above) The amount of each fixed
annuity payment is determined by applying the portion of the proceeds (less any
applicable premium taxes) applied to purchase the fixed annuity to the
appropriate table in the contract. If the table in use by the Company is more
favorable to the contract owner, the Company will substitute that table. The
Company guarantees the dollar amount of fixed annuity payments.
* Currently not available in the state of Washington.
CHARGES AND DEDUCTIONS
Charges and deductions under the contracts are assessed against
purchase payments, contract values or annuity payments. Currently, there are no
deductions made from purchase payments, except for premium taxes in certain
states. See "Taxes" below. In addition, there are deductions from and expenses
paid out of the assets of the Trust portfolios that are described in the
accompanying Prospectus of the Trust.
WITHDRAWAL CHARGES
If a withdrawal is made from the contract before the maturity date, a
withdrawal charge (contingent deferred sales charge) may be assessed against
amounts withdrawn attributable to purchase payments that have been in the
contract less than three complete contract years. Effective November 1, 1996, no
withdrawal charge will be imposed on withdrawals from contracts issued on or
after November 1, 1996. There is never a withdrawal charge with respect to
earnings accumulated in the contract, certain other free withdrawal amounts
described below or purchase payments that have been in the contract more than
three complete contract years. In no event may the total withdrawal charges
exceed 3% of the total purchase payments made. The amount of the withdrawal
charge and when it is assessed is discussed below:
1. Each withdrawal from the contract is allocated first to the "free
withdrawal amount" and second to "unliquidated purchase payments". In any
contract year, the free withdrawal amount for that year is the greater of (1)
the excess of the contract value on the date of withdrawal over the unliquidated
purchase payments (the accumulated earnings on the contract) or (2) 10% of total
purchase payments less any prior partial withdrawals in that year. Withdrawals
allocated to the free withdrawal amount may be withdrawn without the imposition
of a withdrawal charge. The free withdrawal amount will be applied to a
requested withdrawal, first, to withdrawals from variable account investment
options and then to withdrawals from the one year fixed account investment
option.
2. If a withdrawal is made for an amount in excess of the free
withdrawal amount, the excess will be allocated to purchase payments which will
be liquidated on a first-in first-out basis. On any withdrawal request, the
Company will liquidate purchase payments equal to the amount of the withdrawal
request which exceeds the free withdrawal amount in the order such purchase
payments were made: the oldest unliquidated purchase payment first, the next
purchase payment second, etc. until all purchase payments have been liquidated.
3. Each purchase payment or portion thereof liquidated in connection
with a withdrawal request that has been in the contract for less than three
years is subject to a withdrawal charge of 3%.
4. The withdrawal charge is deducted from the contract value remaining
after the contract owner is paid the amount requested, except in the case of a
complete withdrawal when it is deducted from the amount otherwise payable. In
the case of a partial withdrawal, the amount requested from an investment
account may not exceed the value of that investment account less any applicable
withdrawal charge.
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5. There is generally no withdrawal charge on distributions made as a
result of the death of the contract owner or, if applicable, the annuitant (See
"Death Benefit Before Maturity Date -- Amount of Death Benefit"), and no
withdrawal charges are imposed on the maturity date if the contract owner
annuitizes as provided in the contract.
The amount collected from the withdrawal charge will be used to
reimburse the Company for the compensation paid to cover selling concessions to
broker-dealers, preparation of sales literature and other expenses related to
sales activity.
For examples of calculation of the withdrawal charge, see Appendix A.
REDUCTION OR ELIMINATION OF WITHDRAWAL CHARGES
The amount of the withdrawal charge on a contract may be reduced or
eliminated when sales of the contracts are made to individuals or to a group of
individuals in such a manner that results in savings of sales expenses. The
entitlement to such a reduction in the withdrawal charge will be determined by
the Company in the following manner:
1. The size and type of group to which sales are to be made will be
considered. Generally, sales expenses for a larger group are smaller than for a
smaller group because of the ability to implement large numbers of contracts
with fewer sales contacts.
2. The total amount of purchase payments to be received will be
considered. Per dollar sales expenses are likely to be less on larger purchase
payments than on smaller ones.
3. Any prior or existing relationship with the Company will be
considered. Per contract sales expenses are likely to be less when there is a
prior or existing relationship because of the likelihood of implementing the
contract with fewer sales contacts.
4. The level of commissions paid to selling broker-dealers will be
considered. Certain broker-dealers may offer the contract in connection with
financial planning programs offered on a fee for service basis. In view of the
financial planning fees, such broker-dealers may elect to receive lower
commissions for sales of the contracts, thereby reducing the Company's sales
expenses.
5. There may be other circumstances of which the Company is not
presently aware, which could result in reduced sales expenses.
If, after consideration of the foregoing factors, it is determined that
there will be a reduction in sales expenses, the Company will provide a
reduction in the withdrawal charge. The withdrawal charge will be eliminated
when a contract is issued to an officer, director or employee (or a relative
thereof) of the Company, Manulife, the Trust or any of their affiliates. In no
event will reduction or elimination of the withdrawal charge be permitted where
such reduction or elimination will be unfairly discriminatory to any person.
ADMINISTRATION FEES
A daily fee in an amount equal to 0.25% of the value of each variable
investment account on an annual basis is deducted from each sub-account as an
administration fee. The fee is designed to compensate the Company for the cost
of providing administrative services attributable to the contracts and the
operations of the Variable Account and the Company in connection with the
contracts. This asset based administration fee will not be deducted from the
fixed account investment option. The fee will be reflected in the contract value
as a proportionate reduction in the value of each investment account. Because
the administration fee is a percentage of assets rather than a flat amount,
larger contracts will in effect pay a higher proportion of the administrative
expenses than smaller contracts.
Also, if the contract value falls below $10,000 as a result of a
partial withdrawal, the Company may deduct an annual administration fee of $30
as partial compensation for administrative expenses. The fee will be deducted on
the last day of each contract year. It will be withdrawn from each investment
option in the same proportion that the value of such investment option bears to
the contract value. If the entire contract value is withdrawn on other than the
last day of any contract year, the fee will be deducted from the amount paid.
The Company does not expect to recover from the administration fees any
amount in excess of its accumulated administrative expenses. Even though
administrative expenses may increase, the Company guarantees that it will not
increase the amount of the administration fees.
DISTRIBUTION FEE
A daily fee in an amount equal to 0.15% of the value of each variable
investment account on an annual basis is deducted from each sub-account as a
distribution fee. The fee is designed to compensate the Company for a portion
the sales expenses it incurs with respect to
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the contracts. This asset based distribution fee will not be deducted from the
fixed account investment option. The fee will be reflected in the contract value
as a proportionate reduction in the value of each investment account. Because
the distribution fee is a percentage of assets rather than a flat amount, larger
contracts will in effect pay a higher proportion of sales expenses than smaller
contracts. The Company will monitor the performance of the contracts to ensure
that the aggregate amount of withdrawal charges and the distribution fee
assessed under a contract does not exceed 9% of the total purchase payments
made.
MORTALITY AND EXPENSE RISK FEE
The mortality risk assumed by the Company is the risk that annuitants
may live for a longer period of time than estimated. The Company assumes this
mortality risk by virtue of annuity rates incorporated into the contract which
cannot be changed. This assures each annuitant that his longevity will not have
an adverse effect on the amount of annuity payments. Also, the Company
guarantees that if the annuitant dies before the maturity date, it will pay a
minimum death benefit. (See "DEATH BENEFIT BEFORE MATURITY DATE") The expense
risk assumed by the Company is the risk that the administration fees may be
insufficient to cover actual expenses.
To compensate it for assuming these risks, the Company deducts from
each sub-account a daily fee in an amount equal to 1.25% of the value of the
variable investment accounts on an annual basis, consisting of .8% for the
mortality risk and .45% for the expense risk. The fee will be reflected in the
contract value as a proportionate reduction in the value of each variable
investment account. The rate of the mortality and expense risk fee cannot be
increased. If the fee is insufficient to cover the actual cost of the mortality
and expense risks undertaken, the Company will bear the loss. Conversely, if the
fee proves more than sufficient, the excess will be profit to the Company and
will be available for any proper corporate purpose including, among other
things, payment of distribution expenses. The mortality and expense risk charge
is not assessed against the fixed account investment option.
TAXES
The Company reserves the right to charge, or provide for, certain taxes
against purchase payments, contract values or annuity payments. Such taxes may
include premium taxes or other taxes levied by any government entity which the
Company determines to have resulted from the (i) establishment or maintenance of
the Variable Account, (ii) receipt by the Company of purchase payments, (iii)
issuance of the contacts, or (iv) commencement or continuance of annuity
payments under the contracts. In addition, the Company will withhold taxes to
the extent required by applicable law.
Except for residents in Pennsylvania, South Dakota, Kentucky and
Wyoming premium taxes will be deducted from the contract value used to provide
for fixed or variable annuity payments unless required otherwise by applicable
law. The amount deducted will depend on the premium tax assessed in the
applicable state. State premium taxes currently range from 0% to 3.5% depending
on the jurisdiction and the tax status of the contract and are subject to change
by the legislature or other authority. (See "APPENDIX B: STATE PREMIUM TAXES")
FOR RESIDENTS OF PENNSYLVANIA, SOUTH DAKOTA, KENTUCKY OR WYOMING THE FOLLOWING
PREMIUM TAX ASSESSMENT WILL APPLY: A premium tax will be assessed against all
non-qualified purchase payments received from contract owners who are residents
of South Dakota. The rate of tax is 1.25% for South Dakota residents. A premium
tax will be assessed against all non-qualified purchase payments received on or
after March 1, 1997 from contract owners who are residents of Kentucky. A
premium tax will be assessed against all qualified purchase payments received on
or after March 1, 1997 from contract owners who are residents of Kentucky or
Wyoming. The rate of tax is 2.00% for Kentucky residents and 1.00% for Wyoming
residents. Purchase payments received for the period October 1, 1992 through
September 7, 1995 for non-qualified contracts of Pennsylvania residents will be
assessed a 2.00% premium tax; purchase payments received on or after September
8, 1995 will not be assessed a premium tax. For purchase payments received on or
after October 1, 1992 (March 1, 1997 for Kentucky and Wyoming), the state
premium tax will be collected upon payment of any withdrawal benefits, upon any
annuitization or payment of death benefits. For payments received prior to
October 1, 1992 (March 1, 1997 for Kentucky and Wyoming) the premium tax will
deducted upon annuitization only. In the states of Pennsylvania, Wyoming and
South Dakota, purchase payments received in connection with the funding of a
qualified plan are exempt from state premium tax.
FEDERAL TAX MATTERS
INTRODUCTION
The following discussion of the federal income tax treatment of the
contract is not exhaustive, does not purport to cover all situations, and is not
intended as tax advice. A qualified tax adviser should always be consulted with
regard to the application of law to individual circumstances. This discussion is
based on the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Department regulations, and interpretations existing on the date of this
Prospectus. These authorities, however, are subject to change by Congress, the
Treasury Department, and judicial decisions.
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This discussion does not address state or local tax consequences
associated with the purchase of a contract. In addition, THE COMPANY MAKES NO
GUARANTEE REGARDING ANY TAX TREATMENT -- FEDERAL, STATE, OR LOCAL -- OF ANY
CONTRACT OR OF ANY TRANSACTION INVOLVING A CONTRACT.
THE COMPANY'S TAX STATUS
The Company is taxed as a life insurance company under the Code. Since
the operations of the Variable Account are a part of, and are taxed with, the
operations of the Company, the Variable Account is not separately taxed as a
"regulated investment company" under the Code. Under existing federal income tax
laws, investment income and capital gains of the Variable Account are not taxed
to the extent they are applied under a contract. The Company does not anticipate
that it will incur any federal income tax liability attributable to such income
and gains of the Variable Account, and therefore the Company does not intend to
make provision for any such taxes. If the Company is taxed on investment income
or capital gains of the Variable Account, then the Company may impose a charge
against the Variable Account in order to make provision for such taxes.
TAXATION OF ANNUITIES IN GENERAL
TAX DEFERRAL DURING ACCUMULATION PERIOD
Under existing provisions of the Code, except as described below, any
increase in the contract value is generally not taxable to the contract owner or
annuitant until received, either in the form of annuity payments, as
contemplated by the contract, or in some other form of distribution. However,
certain requirements must be satisfied in order for this general rule to apply,
including: (1) the contract must be owned by an individual (or treated as owned
by an individual), (2) the investments of the Variable Account must be
"adequately diversified" in accordance with Treasury Department regulations, (3)
the Company, rather than the owner, must be considered the owner of the assets
of the Variable Account for federal tax purposes, and (4) the contract must
provide for appropriate amortization, through annuity payments, of the
contract's purchase payments and earnings, e.g., the maturity date must not
occur at too advanced an age.
Non-Natural Owner. As a general rule, deferred annuity contracts held
by "non-natural persons" such as a corporation, trust or other similar entity,
as opposed to a natural person, are not treated as annuity contracts for federal
tax purposes. The investment income on such contracts is taxed as ordinary
income that is received or accrued by the owner of the contract during the
taxable year. There are several exceptions to this general rule for non-natural
contract owners. First, contracts will generally be treated as held by a natural
person if the nominal owner is a trust or other entity which holds the contract
as an agent for a natural person. However, this special exception will not apply
in the case of any employer who is the nominal owner of an annuity contract
under a non-qualified deferred compensation arrangement for its employees.
In addition, exceptions to the general rule for non-natural contract
owners will apply with respect to (1) contracts acquired by an estate of a
decedent by reason of the death of the decedent, (2) certain qualified
contracts, (3) certain contracts purchased by employers upon the termination of
certain qualified plans, (4) certain contracts used in connection with
structured settlement agreements, and (5) contracts purchased with a single
premium when the annuity starting date (as defined in the tax law) is no later
than a year from purchase of the annuity and substantially equal periodic
payments are made, not less frequently than annually, during the annuity period.
Diversification Requirements. For a contract to be treated as an
annuity for federal income tax purposes, the investments of the Variable Account
must be "adequately diversified" in accordance with Treasury Department
Regulations. The Secretary of the Treasury has issued regulations which
prescribe standards for determining whether the investments of the Variable
Account are "adequately diversified." If the Variable Account failed to comply
with these diversification standards, a contract would not be treated as an
annuity contract for federal income tax purposes and the contract owner would
generally be taxable currently on the excess of the contract value over the
premiums paid for the contract.
Although the Company does not control the investments of the NASL
Series Trust, it expects that the Trust will comply with such regulations so
that the Variable Account will be considered "adequately diversified."
Ownership Treatment. In certain circumstances, a variable annuity
contract owner may be considered the owner, for federal income tax purposes, of
the assets of the separate account used to support his or her contract. In those
circumstances, income and gains from such separate account assets would be
includible in the contract owner's gross income. The Internal Revenue Service
(the "Service") has stated in published rulings that a variable contract owner
will be considered the owner of separate account assets if the owner possesses
incidents of ownership in those assets, such as the ability to exercise
investment control over the assets. In addition, the Treasury Department
announced, in connection with the issuance of regulations
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concerning investment diversification, that those regulations "do not provide
guidance concerning the circumstances in which investor control of the
investments of a segregated asset account may cause the investor, rather than
the insurance company, to be treated as the owner of the assets in the account."
This announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which policyholders may direct their
investments to particular sub-accounts [of a separate account] without being
treated as owners of the underlying assets." As of the date of this Prospectus,
no such guidance has been issued.
The ownership rights under this contract are similar to, but different
in certain respects from, those described by the Service in rulings in which it
was determined that contract owners were not owners of separate account assets.
For example, the owner of this contract has the choice of many more investment
options to which to allocate premiums and contract values, and may be able to
transfer among investment options more frequently than in such rulings. These
differences could result in the contract owner being treated as the owner of the
assets of the Variable Account and thus subject to current taxation on the
income and gains from those assets. In addition, the Company does not know what
standards will be set forth in the regulations or rulings which the Treasury
Department has stated it expects to issue. The Company therefore reserves the
right to modify the contract as necessary to attempt to prevent the contract
owner from being considered the owner of the assets of the Variable Account.
Delayed Maturity Dates. If the contract's maturity date occurs (or is
scheduled to occur) at a time when the annuitant has reached an advanced age,
e.g., past age 85, it is possible that the contract would not be treated as an
annuity for federal income tax purposes. In that event, the income and gains
under the contract could be currently includible in the owner's income.
The remainder of this discussion assumes that the contract will be
treated as an annuity contract for federal income tax purposes and that the
Company will be treated as the owner of the Variable Account assets.
TAXATION OF PARTIAL AND FULL WITHDRAWALS
In the case of a partial withdrawal, amounts received are includible in
income to the extent the contract value before the withdrawal exceeds the
"investment in the contract." In the case of a full withdrawal, amounts received
are includible in income to the extent they exceed the "investment in the
contract." For these purposes the investment in the contract at any time equals
the total of the purchase payments made under the contract to that time (to the
extent such payments were neither deductible when made nor excludible from
income as, for example, in the case of certain employer contributions to
qualified plans) less any amounts previously received from the contract which
were not included in income.
Other than in the case of certain qualified contracts, any amount
received as a loan under a contract, and any assignment or pledge (or agreement
to assign or pledge) any portion of the contract value, is treated as a
withdrawal of such amount or portion. (Loans, assignments and pledges are
permitted only in limited circumstances under qualified contracts.) The
investment in the contract is increased by the amount includible in income with
respect to such assignment or pledge, though it is not affected by any other
aspect of the assignment or pledge (including its release). If an individual
transfers an annuity contract without adequate consideration to a person other
than the owner's spouse (or to a former spouse incident to divorce), the owner
will be taxed on the difference between the "contract value" and the "investment
in the contract" at the time of transfer. In such case, the transferee's
investment in the contract will be increased to reflect the increase in the
transferor's income.
The contract provides a death benefit that in certain circumstances may
exceed the greater of the purchase payments and the contract value. As described
elsewhere in this Prospectus, the Company imposes certain charges with respect
to the death benefit. It is possible that those charges (or some portion
thereof) could be treated for federal income tax purposes as a partial
withdrawal from the contract.
There may be special income tax issues present in situations where the
owner and the annuitant are not the same person and are not married to one
another. A tax advisor should be consulted in those situations.
TAXATION OF ANNUITY PAYMENTS
Normally, the portion of each annuity payment taxable as ordinary
income is equal to the excess of the payment over the exclusion amount. In the
case of variable annuity payments, the exclusion amount is the "investment in
the contract" (defined above) allocated to the variable annuity option, adjusted
for any period certain or refund feature, when payments begin to be made divided
by the number of payments expected to be made (determined by Treasury Department
regulations which take into account the annuitant's life expectancy and the form
of annuity benefit selected). In the case of fixed annuity payments, the
exclusion amount is the amount determined by multiplying (1) the payment by (2)
the ratio of the investment in the contract allocated to the
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<PAGE> 38
fixed annuity option, adjusted for any period certain or refund feature, to the
total expected value of annuity payments for the term of the contract
(determined under Treasury Department regulations).
Once the total amount of the investment in the contract is excluded
using these ratios, annuity payments will be fully taxable. If annuity payments
cease because of the death of the annuitant and before the total amount of the
investment in the contract is recovered, the unrecovered amount generally will
be allowed as a deduction to the annuitant in his or her last taxable year.
TAXATION OF DEATH BENEFIT PROCEEDS
Amounts may be distributed from a non-qualified contract because of the
death of an owner or the annuitant. Prior to the maturity date, such death
benefit proceeds are includible in income as follows: (1) if distributed in a
lump sum, they are taxed in the same manner as a full withdrawal, as described
above, or (2) if distributed under an annuity option, they are taxed in the same
manner as annuity payments, as described above. After the maturity date, where a
guaranteed period exists under an annuity option and the annuitant dies before
the end of that period, payments made to the beneficiary for the remainder of
that period are includible in income as follows: (1) if received in a lump sum,
they are includible in income to the extent that they exceed the unrecovered
investment in the contract at that time, or (2) if distributed in accordance
with the existing annuity option selected, they are fully excludable from income
until the remaining investment in the contract is deemed to be recovered, and
all annuity payments thereafter are fully includible in income.
PENALTY TAX ON PREMATURE DISTRIBUTIONS
There is a 10% penalty tax on the taxable amount of any payment from a
non-qualified contract unless the payment is: (a) received on or after the
contract owner reaches age 59 1/2; (b) attributable to the contract owner's
becoming disabled (as defined in the tax law); (c) made to a beneficiary on or
after the death of the contract owner or, if the contract owner is not an
individual, on or after the death of the primary annuitant (as defined in the
tax law); (d) made as a series of substantially equal periodic payments (not
less frequently than annually) for the life (or life expectancy) of the
annuitant or for the joint lives (or joint life expectancies) of the annuitant
and designated beneficiary (as defined in the tax law); (e) made under an
annuity contract purchased with a single premium when the annuity starting date
(as defined in the tax law) is no later than a year from purchase of the annuity
and substantially equal periodic payments are made, not less frequently than
annually, during the annuity period; or (f) made with respect to certain
annuities issued in connection with structured settlement agreements. (A similar
penalty tax, applicable to distributions from certain qualified contracts, is
discussed below.)
AGGREGATION OF CONTRACTS
In certain circumstances, the amount of an annuity payment or a
withdrawal from a contract that is includible in income may be determined by
combining some or all of the non-qualified contracts owned by an individual. For
example, if a person purchases a contract offered by this Prospectus and also
purchases at approximately the same time an immediate annuity, the Service may
treat the two contracts as one contract. In addition, if a person purchases two
or more deferred annuity contracts from the same insurance company (or its
affiliates) during any calendar year, all such contracts will be treated as one
contract. The effects of such aggregation are not clear; however, it could
affect the amount of a withdrawal or an annuity payment that is taxable and the
amount which might be subject to the penalty tax described above.
QUALIFIED RETIREMENT PLANS
The contracts are also designed for use in connection with certain
types of retirement plans which receive favorable treatment under the Code.
Numerous special tax rules apply to the participants in such qualified plans and
to the contracts used in connection with such qualified plans. Therefore, no
attempt is made in this Prospectus to provide more than general information
about use of the contract with the various types of qualified plans.
The tax rules applicable to qualified plans vary according to the type
of plan and the terms and conditions of the plan itself. For example, for both
withdrawals and annuity payments under certain qualified contracts, there may be
no "investment in the contract" and the total amount received may be taxable.
Also, loans from qualified contracts, where allowed, are subject to a variety of
limitations, including restrictions as to the amount that may be borrowed, the
duration of the loan, and the manner in which the loan must be repaid. (Owners
should always consult their tax advisors and retirement plan fiduciaries prior
to exercising their loan privileges.) Both the amount of the contribution that
may be made, and the tax deduction or exclusion that the owner may claim for
such contribution, are limited under qualified plans. If this contract is used
in connection with a qualified plan, the owner and annuitant must be the same
individual. If a co-annuitant is named, all
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<PAGE> 39
distributions made while the annuitant is alive must be made to the annuitant.
Also, if a co-annuitant is named who is not the annuitant's spouse, the annuity
options which are available may be limited, depending on the difference in ages
between the annuitant and co-annuitant. Furthermore, the length of any guarantee
period may be limited in some circumstances to satisfy certain minimum
distribution requirements under the Code.
In addition, special rules apply to the time at which distributions
must commence and the form in which the distributions must be paid. For example,
failure to comply with minimum distribution requirements applicable to qualified
plans will result in the imposition of an excise tax. This excise tax generally
equals 50% of the amount by which a minimum required distribution exceeds the
actual distribution from the qualified plan. In the case of IRAs, distributions
of minimum amounts (as specified in the tax law) must generally commence by
April 1 of the calendar year following the calendar year in which the owner
attains age 70 1/2. In the case of certain other qualified plans, distributions
of such minimum amounts must generally commence by the later of this date or
April 1 of the calendar year following the calendar year in which the employee
retires.
There is also a 10% penalty tax on the taxable amount of any payment
from certain qualified contracts (but not section 457 plans). (The amount of the
penalty tax is 25% of the taxable amount of any payment received from a "SIMPLE
retirement account" during the 2 year period beginning on the date the
individual first participated in any qualified salary reduction arrangement (as
defined in the tax law) maintained by the individual's employer.) There are
exceptions to this penalty tax which vary depending on the type of qualified
plan. In the case of an "Individual Retirement Annuity" ("IRA"), including a
"SIMPLE IRA," exceptions provide that the penalty tax does not apply to a
payment (a) received on or after the contract owner reaches age 59 1/2, (b)
received on or after the owner's death or because of the owner's disability (as
defined in the tax law), or (c) made as a series of substantially equal periodic
payments (not less frequently than annually) for the life (or life expectancy)
of the owner or for the joint lives (or joint life expectancies) of the owner
and designated beneficiary (as defined in the tax law). These exceptions, as
well as certain others not described herein, generally apply to taxable
distributions from other qualified plans (although, in the case of plans
qualified under sections 401 and 403, exception "c" above for substantially
equal periodic payments applies only if the owner has separated from service).
When issued in connection with a qualified plan, a contract will be
amended as generally necessary to conform to the requirements of the plan.
However, contract owners, annuitants, and beneficiaries are cautioned that the
rights of any person to any benefits under qualified plans may be subject to the
terms and conditions of the plans themselves, regardless of the terms and
conditions of the contract. In addition, the Company shall not be bound by terms
and conditions of qualified plans to the extent such terms and conditions
contradict the contract, unless the Company consents.
QUALIFIED PLAN TYPES
Following are brief descriptions of various types of qualified plans in
connection with which the Company may issue a contract.
Individual Retirement Annuities. Section 408 of the Code permits
eligible individuals to contribute to an individual retirement program known as
an "Individual Retirement Annuity" or "IRA." IRAs are subject to limits on the
amounts that may be contributed, the persons who may be eligible and on the time
when distributions may commence. Also, distributions from certain other types of
qualified retirement plans may be "rolled over" on a tax-deferred basis into an
IRA.
IRAs generally may not provide life insurance coverage, but they may
provide a death benefit that equals the greater of the premiums paid and the
contract value. The contract provides a death benefit that in certain
circumstances may exceed the greater of the purchase payments and the contract
value. It is possible that the contract's death benefit could be viewed as
providing life insurance coverage with the result that the contract would not be
viewed as satisfying the requirements of an IRA.
Simplified Employee Pensions (SEP-IRAs). Section 408(k) of the Code
allows employers to establish simplified employee pension plans for their
employees, using the employees' IRAs for such purposes, if certain criteria are
met. Under these plans the employer may, within specified limits, make
deductible contributions on behalf of the employees to IRAs. As discussed above
(see Individual Retirement Annuities), there is some uncertainty regarding the
treatment of the contract's death benefit for purposes of the tax rules
governing IRAs (which would include SEP-IRAs). Employers intending to use the
contract in connection with such plans should seek competent advice.
SIMPLE IRAs. Section 408(p) of the Code permits certain small employers
to establish "SIMPLE retirement accounts," including SIMPLE IRAs, for their
employees. Under SIMPLE IRAs, certain deductible contributions are made by both
employees and employers. SIMPLE IRAs are subject to various requirements,
including limits on the amounts that
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<PAGE> 40
may be contributed, the persons who may be eligible, and the time when
distributions may commence. As discussed above (see Individual Retirement
Annuities), there is some uncertainty regarding the proper characterization of
the contract's death benefit for purposes of the tax rules governing IRAs (which
would include SIMPLE IRAs). Employees intending to use the contract in
connection with such plans should seek competent advice.
Corporate and Self-Employed ("H.R. 10" and "Keogh") Pension and
Profit-Sharing Plans. Sections 401(a) and 403(a) of the Code permit corporate
employers to establish various types of tax-favored retirement plans for
employees. The Self-Employed Individuals' Tax Retirement Act of 1962, as
amended, commonly referred to as "H.R. 10" or "Keogh", permits self-employed
individuals also to establish such tax-favored retirement plans for themselves
and their employees. Such retirement plans may permit the purchase of the
contracts in order to provide benefits under the plans. The contract provides a
death benefit that in certain circumstances may exceed the greater of the
purchase payments and the contract value. It is possible that such death benefit
could be characterized as an incidental death benefit. There are limitations on
the amount of incidental benefits that may be provided under pension and profit
sharing plans. In addition, the provision of such benefits may result in current
taxable income to participants. Employers intending to use the contract in
connection with such plans should seek competent advice.
Tax-Sheltered Annuities. Section 403(b) of the Code permits public
school employees and employees of certain types of charitable, educational and
scientific organizations specified in section 501(c)(3) of the Code to have
their employers purchase annuity contracts for them and, subject to certain
limitations, to exclude the amount of purchase payments from gross income for
tax purposes. These annuity contracts are commonly referred to as "tax-sheltered
annuities". Purchasers of the contracts for such purposes should seek competent
advice as to eligibility, limitations on permissible amounts of purchase
payments and other tax consequences associated with the contracts. In
particular, purchasers should consider that the contract provides a death
benefit that in certain circumstances may exceed the greater of the purchase
payments and the contract value. It is possible that such death benefit could be
characterized as an incidental death benefit. If the death benefit were so
characterized, this could result in currently taxable income to purchasers. In
addition, there are limitations on the amount of incidental benefits that may be
provided under a tax-sheltered annuity. Even if the death benefit under the
contract were characterized as an incidental death benefit, it is unlikely to
violate those limits unless the purchaser also purchases a life insurance
contract as part of his or her tax-sheltered annuity plan.
Tax-sheltered annuity contracts must contain restrictions on
withdrawals of (i) contributions made pursuant to a salary reduction agreement
in years beginning after December 31, 1988, (ii) earnings on those
contributions, and (iii) earnings after 1988 on amounts attributable to salary
reduction contributions (and earnings on those contributions) held as of the
last day of the year beginning before January 1, 1989. These amounts can be paid
only if the employee has reached age 59 1/2, separated from service, died, or
become disabled (within the meaning of the tax law), or in the case of hardship
(within the meaning of the tax law). Amounts permitted to be distributed in the
event of hardship are limited to actual contributions; earnings thereon cannot
be distributed on account of hardship. Amounts subject to the withdrawal
restrictions applicable to section 403(b)(7) custodial accounts may be subject
to more stringent restrictions. (These limitations on withdrawals do not apply
to the extent the Company is directed to transfer some or all of the contract
value to the issuer of another tax-sheltered annuity or into a section 403(b)(7)
custodial account.)
Deferred Compensation Plans of State and Local Governments and
Tax-Exempt Organizations. Section 457 of the Code permits employees of state and
local governments and tax-exempt organizations to defer a portion of their
compensation without paying current taxes. The employees must be participants in
an eligible deferred compensation plan. Generally, a contract purchased by a
state or local government or a tax-exempt organization will not be treated as an
annuity contract for federal income tax purposes. Those who intend to use the
contracts in connection with such plans should seek competent advice.
DIRECT ROLLOVERS
If the contract is used in connection with a retirement plan that is
qualified under sections 401(a), 403(a), or 403(b) of the Code, any "eligible
rollover distribution" from the contract will be subject to "direct rollover"
and mandatory withholding requirements. An eligible rollover distribution
generally is any taxable distribution from such qualified plans, excluding
certain amounts such as (i) minimum distributions required under section
401(a)(9) of the Code, and (ii) certain distributions for life, life expectancy,
or for 10 years or more which are part of a "series of substantially equal
periodic payments."
Under these requirements, federal income tax equal to 20% of the
eligible rollover distribution will be withheld from the amount of the
distribution. Unlike withholding on certain other amounts distributed from the
contract, discussed below, the owner cannot elect out of withholding with
respect to an eligible rollover distribution. However, this 20% withholding will
not apply if, instead of receiving the eligible rollover distribution, the
distributee elects to have it directly transferred to certain qualified plans.
Prior to receiving an eligible rollover distribution, a notice will be provided
explaining generally the direct rollover and mandatory withholding requirements
and how to avoid the 20% withholding by electing a direct rollover.
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<PAGE> 41
FEDERAL INCOME TAX WITHHOLDING
The Company will withhold and remit to the U.S. Government a part of
the taxable portion of each distribution made under a contract unless the
distributee notifies the Company at or before the time of the distribution that
he or she elects not to have any amounts withheld. In certain circumstances, the
Company may be required to withhold tax. The withholding rates applicable to the
taxable portion of periodic annuity payments are the same as the withholding
rates generally applicable to payments of wages. In addition, the withholding
rate applicable to the taxable portion of non-periodic payments (including
withdrawals prior to the maturity date) is 10%. As discussed above, the
withholding rate applicable to eligible rollover distributions is 20%.
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<PAGE> 42
GENERAL MATTERS
TAX DEFERRAL
The status of the contract as an annuity generally allows all earnings
on the underlying investments to be tax-deferred until withdrawn or until
annuity payments begin. (See "FEDERAL TAX MATTERS") This tax deferred treatment
may be beneficial to contract owners in building assets in a long-term
investment program.
PERFORMANCE DATA
From time to time the Variable Account may publish advertisements
containing performance data relating to its sub-accounts. For periods prior to
April 1, 1993, performance data will be hypothetical figures based on the
assumption that a contract offered by this Prospectus was issued when the
sub-accounts first became available for investment under other contracts offered
by the Company. Hypothetical performance figures will also be furnished for
sub-accounts investing in NASL Series Trust portfolios established on December
31, 1996 in connection with the merger of Manulife Series Fund, Inc. with and
into NASL Series Trust. Such figures are based on the assumption that the
sub-accounts had been available for investment under a contract offered by this
Prospectus when the applicable Manulife Series Fund, Inc. portfolio first became
available under contracts issued by affiliates of the Company. The sub-accounts
may advertise both "standardized" and "non-standardized" total return figures,
although standardized figures will always accompany non-standardized figures.
Standardized performance data will consist of total return quotations, which
will always include quotations for recent one year and, when applicable, five
and ten year periods and, where less than ten years, for the period subsequent
to the date each sub-account first became available for investment. Such
quotations for such periods will be the average annual rates of return required
for an initial purchase payment of $1,000 to equal the actual contract value
attributable to such purchase payment on the last day of the period, after
reflection of all charges. Standardized total return figures will be quoted
assuming redemption at the end of the period. Such figures may be accompanied by
non-standardized total return figures that are calculated on the same basis as
the standardized returns except that the calculations assume no redemption at
the end of the period. In addition to the non-standardized returns, each of the
sub-accounts may from time to time quote aggregate non-standardized total
returns for other time periods. Except as noted above, performance figures used
by the Variable Account are based on the actual historical performance of its
sub-accounts for specified periods, and the figures are not intended to indicate
future performance. More detailed information on the computations is set forth
in the Statement of Additional Information.
FINANCIAL STATEMENTS
Financial Statements for the Variable Account and the Company are
contained in the Statement of Additional Information.
ASSET ALLOCATION AND TIMING SERVICES
The Company is aware that certain third parties are offering asset
allocation and timing services in connection with the contracts. In certain
cases the Company has agreed to honor transfer instructions from such asset
allocation and timing services where it has received powers of attorney, in a
form acceptable to it, from the contract owners participating in the service.
THE COMPANY DOES NOT ENDORSE, APPROVE OR RECOMMEND SUCH SERVICES IN ANY WAY AND
CONTRACT OWNERS SHOULD BE AWARE THAT FEES PAID FOR SUCH SERVICES ARE SEPARATE
AND IN ADDITION TO FEES PAID UNDER THE CONTRACTS.
RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM
Section 830.105 of the Texas Government Code permits participants in
the Texas Optional Retirement Program ("ORP") to withdraw their interest in a
variable annuity contract issued under the ORP only upon (1) termination of
employment in the Texas public institutions of higher education, (2) retirement,
(3) death, or (4) the participant's attainment of age 70 1/2. Accordingly,
before any amounts may be distributed from the contract, proof must be furnished
to the Company that one of these four events has occurred. The foregoing
restrictions on withdrawal do not apply in the event a participant in the ORP
transfers the contract value to another contract or another qualified custodian
during the period of participation in the ORP. Loans are not available under
contracts subject to the ORP.
DISTRIBUTION OF CONTRACTS
NASL Financial Services, Inc. ("NASL Financial"), 116 Huntington
Avenue, Boston, Massachusetts 02116, a wholly-owned subsidiary of the Company,
is the principal underwriter of the contracts in addition to providing advisory
services to the Trust. NASL Financial is a broker-dealer registered under the
Securities Exchange Act of 1934 ("1934 Act") and a member of the National
Association of Securities Dealers, Inc. ("NASD"). NASL Financial has entered
into an exclusive promotional agent agreement with Wood Logan Associates,
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<PAGE> 43
Inc. ("Wood Logan"). Wood Logan is a broker-dealer registered under the 1934 Act
and a member of the NASD. Wood Logan is a wholly owned subsidiary of a holding
company that is 85% owned by Manulife and approximately 15% owned by the
principals of Wood Logan. Sales of the contracts will be made by registered
representatives of broker-dealers authorized by NASL Financial to sell the
contracts. Such registered representatives will also be licensed insurance
agents of the Company. Under the promotional agent agreement, Wood Logan will
recruit and provide sales training and licensing assistance to such registered
representatives. In addition, Wood Logan will prepare sales and promotional
materials for the Company's approval. NASL Financial will pay distribution
compensation to selling brokers in varying amounts which under normal
circumstances are not expected to exceed 1% of purchase payments plus 1% of the
contract value per year commencing one year after each initial purchase payment.
NASL Financial may from time to time pay additional compensation pursuant to
promotional contests. Additionally, in some circumstances, NASL Financial will
provide reimbursement of certain sales and marketing expenses. NASL Financial
will pay the promotional agent for providing marketing support for the
distribution of the contracts.
CONTRACT OWNER INQUIRIES
All contract owner inquiries should be directed to the Company's
Annuity Service Office at P.O. Box 9230, Boston, Massachusetts 02205-9230.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Variable Account is a party
or to which the assets of the Variable Account are subject. Neither the Company
nor NASL Financial are involved in any litigation that is of material importance
in relation to their total assets or that relates to the Variable Account.
OTHER INFORMATION
A registration statement has been filed with the Commission under the
1933 Act, as amended, with respect to the contracts described in this
Prospectus. Not all the information set forth in the registration statement,
amendments and exhibits thereto has been included in this Prospectus. Statements
contained in this Prospectus or the Statement of Additional Information
concerning the content of the contracts and other legal instruments are only
summaries. For a complete statement of the terms of these documents, reference
should be made to the instruments filed with the Commission.
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
General Information and History......................... 3
Performance Data........................................ 3
Services
Independent Auditors............................. 6
Servicing Agent.................................. 6
Principal Underwriter............................ 6
Cancellation of Contract......................... 6
Financial Statements.................................... 7
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APPENDIX A
EXAMPLES OF CALCULATION OF WITHDRAWAL CHARGE*
EXAMPLE 1 - Assume a single payment of $50,000 is made into the contract, no
transfers are made, no additional payments are made and there are no partial
withdrawals. The table below illustrates four examples of the withdrawal charges
that would be imposed if the contract is completely withdrawn, based on
hypothetical contract values.
<TABLE>
<CAPTION>
WITHDRAWAL
HYPOTHETICAL FREE PURCHASE CHARGE
CONTRACT CONTRACT WITHDRAWAL PAYMENTS ------------------
YEAR VALUE AMOUNT LIQUIDATED PERCENT AMOUNT
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 55,000 5,000(a) 50,000 3% 1,500
2 50,500 5,000(b) 45,500 3% 1,365
3 60,000 10,000(c) 50,000 3% 1,500
4 70,000 20,000(d) 50,000 0% 0
</TABLE>
(a) During any contract year the free withdrawal amount is the greater of
accumulated earnings, or 10% of the total purchase payments made under
the contract less any prior partial withdrawals in that contract year.
In the first contract year the earnings under the contract and 10% of
purchase payments both equal $5,000. Consequently, on total withdrawal
$5,000 is withdrawn free of the withdrawal charge, the entire $50,000
purchase payment is liquidated and the withdrawal charge is assessed
against such liquidated purchase payment (contract value less free
withdrawal amount).
(b) In the example for the second contract year, the accumulated earnings
of $500 is less than 10% of purchase payments, therefore the free
withdrawal amount is equal to 10% of purchase payments ($50,000 X 10% =
$5,000) and the withdrawal charge is only applied to purchase payments
liquidated (contract value less free withdrawal amount).
(c) In the example for the third contract year, the accumulated earnings of
$10,000 is greater than 10% of purchase payments ($5,000), therefore
the free withdrawal amount is equal to the accumulated earnings of
$10,000 and the withdrawal charge is applied to the purchase payments
liquidated (contract value less free withdrawal amount).
(d) There is no withdrawal charge on any purchase payments liquidated that
have been in the contract for at least 3 years.
EXAMPLE 2 - Assume a single payment of $50,000 is made into the contract, no
transfers are made, no additional payments are made and there are a series of
four partial withdrawals made during the third contract year of $2,000, $5,000,
$7,000, and $8,000.
<TABLE>
<CAPTION>
WITHDRAWAL
HYPOTHETICAL PARTIAL FREE PURCHASE CHARGE
CONTRACT WITHDRAWAL WITHDRAWAL PAYMENTS -----------------
VALUE REQUESTED AMOUNT LIQUIDATED PERCENT AMOUNT
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
a) 65,000 2,000 15,000 0 3% 0
b) 49,000 5,000 3,000 2,000 3% 60
c) 52,000 7,000 4,000 3,000 3% 90
d) 44,000 8,000 0 8,000 3% 240
</TABLE>
(a) The free withdrawal amount during any contract year is the greater of
the contract value less the unliquidated purchase payments (accumulated
earnings), or 10% of purchase payments less 100% of all prior
withdrawals in that contract year. For the first example, accumulated
earnings of $15,000 is the free withdrawal amount since it is greater
than 10% of purchase payments less prior withdrawals ($5,000-0). The
amount requested ($2,000) is less than the free withdrawal amount so no
purchase payments are liquidated and no withdrawal charge applies.
(b) The contract has negative accumulated earnings ($49,000-$50,000), so
the free withdrawal amount is limited to 10% of purchase payments less
all prior withdrawals. Since $2,000 has already been withdrawn earlier
in the current contract year, the remaining free withdrawal amount
during the third contract year is $3,000. The $5,000 partial withdrawal
will consist
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of $3,000 free of withdrawal charge, and the remaining $2,000 will be
subject to a withdrawal charge and result in purchase payments being
liquidated. The remaining unliquidated purchase payments are $48,000.
(c) The contract has increased in value to $52,000. The unliquidated
purchase payments are $48,000 so the accumulated earnings are $4,000,
which is greater than 10% of purchase payments less prior withdrawals
($5,000-$2,000-$5,000 less than 0). Hence the free withdrawal amount is
$4,000. Therefore, $3,000 of the $7,000 partial withdrawal will be
subject to a withdrawal charge and result in purchase payments being
liquidated. The remaining unliquidated purchase payments are $45,000.
(d) The free withdrawal amount is zero since the contract has negative
accumulated earnings ($44,000-$45,000) and the full 10% of purchase
payments ($5,000) has already been utilized. The full amount of $8,000
will result in purchase payments being liquidated subject to a
withdrawal charge. At the beginning of the next contract year the full
10% of purchase payments would be available again for withdrawal
requests during that year.
* Effective November 1, 1996, no withdrawal charge will be imposed on
withdrawals from contracts issued on or after November 1, 1996.
APPENDIX B
STATE PREMIUM TAXES
Premium taxes vary according to the state and are subject to change. In
many jurisdictions there is no tax at all. For current information, a tax
adviser should be consulted.
<TABLE>
<CAPTION>
TAX RATE
QUALIFIED NON-QUALIFIED
STATE CONTRACTS CONTRACTS
- ----------------------------------------------------------------
<S> <C> <C>
CALIFORNIA.................. .50% 2.35%
DISTRICT OF COLUMBIA........ 2.25% 2.25%
KANSAS...................... .00% 2.00%
KENTUCKY.................... 2.00% 2.00%
MAINE....................... .00% 2.00%
NEVADA...................... .00% 3.50%
PUERTO RICO................. 1.00% 1.00%
SOUTH DAKOTA................ .00% 1.25%
TEXAS....................... .04% .04%
WEST VIRGINIA............... 1.00% 1.00%
WYOMING..................... .00% 1.00%
</TABLE>
40
<PAGE> 46
APPENDIX C
For all contracts issued in Pennsylvania the maximum maturity age based upon the
issue age of the annuitant is as follows:
<TABLE>
<CAPTION>
ISSUE AGE MAXIMUM MATURITY AGE
- -----------------------------------------------------------
<S> <C>
70 or less 85
71-75 86
76-80 88
81-85 90
86-90 93
91-93 96
94-95 98
96-97 99
98-99 101
100-101 102
102 103
103 104
104 105
105 106
</TABLE>
It is required that the annuitant exercise a settlement annuity
option no later than the maximum maturity age stated above. For example an
annuitant age 60 at issue must exercise a settlement option prior to the
attainment of age 86. The Company will use the issue age of the youngest named
annuitant in the determination of the required settlement option date.
If contracts are issued with annuitants over age 96, a withdrawal
charge could be imposed if they terminate the contract rather than elect a
settlement option upon attainment of the maximum maturity age. This is a result
of the restrictions by Pennsylvania in combination with the 3-year withdrawal
charge schedule of the contract.
41
<PAGE> 47
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
NASL VARIABLE ACCOUNT
- --------------------------------------------------------------------------------
OF
NORTH AMERICAN SECURITY
LIFE INSURANCE COMPANY
FLEXIBLE PURCHASE PAYMENT INDIVIDUAL DEFERRED
COMBINATION FIXED AND VARIABLE ANNUITY CONTRACT
NON-PARTICIPATING
This Statement of Additional Information is not a Prospectus. It
contains information in addition to that described in the Prospectus and should
be read in conjunction with the Prospectus dated the same date as this Statement
of Additional Information. The Prospectus may be obtained by writing North
American Security Life Insurance Company ("the Company") at the Annuity Service
Office, P.O. Box 9230, Boston, Massachusetts 02205-9230 or telephoning (617)
266-6008.
The date of this Statement of Additional Information is May 1, 1997.
North American Security Life Insurance Company
116 Huntington Avenue
Boston, Massachusetts 02116
(617) 266-6008
VV.SAI597
<PAGE> 48
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
General Information and History................................. 3
Performance Data................................................ 3
Services
Independent Auditors..................................... 6
Servicing Agent.......................................... 6
Principal Underwriter.................................... 6
Cancellation of Contract................................. 6
Financial Statements............................................ 8
2
<PAGE> 49
GENERAL INFORMATION AND HISTORY
The NASL Variable Account ("Variable Account") is a separate investment
account of the Company, a stock life insurance company organized under the laws
of Delaware in 1979. The ultimate parent of the Company is The Manufacturers
Life Insurance Company ("Manulife"), a Canadian mutual life insurance Company
based in Toronto, Canada. Prior to January 1, 1996, the Company was a wholly
owned subsidiary of North American Life Assurance Company ("NAL"), a Canadian
mutual life insurance company. On January 1, 1996 NAL and Manulife merged with
the combined company retaining the Manulife name.
PERFORMANCE DATA
Each of the sub-accounts may in its advertising and sales materials
quote total return figures. For periods prior to April 1, 1993, performance data
will be hypothetical figures based on the assumption that a contract offered by
the Prospectus was issued when the sub-accounts first became available for
investment under other contracts offered by the Company. Hypothetical
performance figures will also be furnished for sub-accounts investing in NASL
Series Trust portfolios established on December 31, 1996 in connection with the
merger of Manulife Series Fund, Inc. with and into NASL Series Trust. Such
figures are based on the assumption that the sub-accounts had been available for
investment under a contract offered by this Prospectus when the applicable
Manulife Series Fund, Inc. portfolio first became available under contracts
issued by affiliates of the Company. The sub-accounts may advertise both
"standardized" and "non-standardized" total return figures, although
standardized figures will always accompany non-standardized figures. Such
figures will always include the average annual total return for recent one year
and, when applicable, five and ten year periods and, where less than ten years,
the period since the sub-account first became available for investment. Where
the period since inception is less than one year, the total return quoted will
be the aggregate return for the period. The average annual total return is the
average annual compounded rate of return that equates a purchase payment to the
market value of such purchase payment on the last day of the period for which
such return is calculated. The aggregate total return is the percentage change
(not annualized) that equates a purchase payment to the market value of such
purchase payment on the last day of the period for which such return is
calculated. For purposes of the calculations it is assumed that an initial
payment of $1,000 is made on the first day of the period for which the return is
calculated. In calculating standardized return figures, all recurring charges
(all asset charges (mortality and expense risk fees, administrative fees and
distribution fees)) are reflected, and the asset charges are reflected in
changes in unit values. Standardized total return figures will be quoted
assuming redemption at the end of the period. Such figures may be accompanied by
non-standardized total return figures that are calculated on the same basis as
the standardized returns except that the calculations assume no redemption at
the end of the period. The Company believes such non-standardized figures are
useful to contract owners who wish to assess the performance of an ongoing
contract.
3
<PAGE> 50
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN FIGURES
CALCULATED AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
==============================================================================================================
TRUST PORTFOLIO 1 YEAR 5 YEAR SINCE INCEPTION OR INCEPTION DATE
10 YEARS, WHICHEVER
IS SHORTER
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pacific Rim Emerging 5.07 % N/A 3.03% 10/4/94
Markets*
- --------------------------------------------------------------------------------------------------------------
International Small Cap N/A N/A 4.79% 3/4/96
- --------------------------------------------------------------------------------------------------------------
Small/Mid Cap N/A N/A 2.64% 3/4/96
- --------------------------------------------------------------------------------------------------------------
Global Equity 7.76 % 8.43% 6.79% 3/18/88
- --------------------------------------------------------------------------------------------------------------
Growth N/A N/A 6.70% 7/15/96
- --------------------------------------------------------------------------------------------------------------
Equity 15.16 % 14.55% 12.02% 6/18/85
- --------------------------------------------------------------------------------------------------------------
Quantitative Equity* 12.99 % 10.09% 8.84% 4/30/87
- --------------------------------------------------------------------------------------------------------------
Blue Chip Growth 20.82 % N/A 7.78% 12/11/92
- --------------------------------------------------------------------------------------------------------------
Real Estate Securities* 29.49 % 15.61% 11.48% 4/30/87
- --------------------------------------------------------------------------------------------------------------
Int'l Growth & Income 7.75 % N/A 6.66% 1/09/95
- --------------------------------------------------------------------------------------------------------------
Growth and Income 17.81 % 12.67% 12.83% 4/23/91
- --------------------------------------------------------------------------------------------------------------
Equity-Income 14.88 % N/A 12.67% 2/19/93
- --------------------------------------------------------------------------------------------------------------
Aggressive Asset Allocation 8.13 % 8.66% 7.16% 8/03/89
- --------------------------------------------------------------------------------------------------------------
Moderate Asset Allocation 5.20 % 7.46% 6.42% 8/03/89
- --------------------------------------------------------------------------------------------------------------
Conservative Asset 2.41 % 5.97% 5.52% 8/03/89
Allocation
- --------------------------------------------------------------------------------------------------------------
Strategic Bond 9.80 % N/A 7.22% 2/19/93
- --------------------------------------------------------------------------------------------------------------
Global Government Bond 8.15 % 8.01% 7.77% 3/18/88
- --------------------------------------------------------------------------------------------------------------
Capital Growth Bond* (1.92)% 4.88% 5.68% 6/26/84
- --------------------------------------------------------------------------------------------------------------
Investment Quality Bond** (1.84)% 4.88% 6.45% 4/23/91
- --------------------------------------------------------------------------------------------------------------
U.S. Government (1.08)% 4.43% 6.08% 5/01/89
Securities***
- --------------------------------------------------------------------------------------------------------------
Money Market 0.52 % 2.40% 3.82% 6/18/85
- --------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 51
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURN FIGURES
CALCULATED AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
==============================================================================================================
TRUST PORTFOLIO 1 YEAR 5 YEAR SINCE INCEPTION OR INCEPTION DATE
10 YEARS, WHICHEVER
IS SHORTER
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pacific Rim Emerging 8.01% N/A 4.31% 10/4/94
Markets*
- --------------------------------------------------------------------------------------------------------------
International Small Cap N/A N/A 7.72% 3/4/96
- --------------------------------------------------------------------------------------------------------------
Small/Mid Cap N/A N/A 5.51% 3/4/96
- --------------------------------------------------------------------------------------------------------------
Global Equity 10.76% 8.43% 6.79% 3/18/88
- --------------------------------------------------------------------------------------------------------------
Growth N/A N/A 9.69% 7/15/96
- --------------------------------------------------------------------------------------------------------------
Equity 18.16% 14.55% 12.02% 6/18/85
- --------------------------------------------------------------------------------------------------------------
Quantitative Equity* 15.99% 10.09% 8.84% 4/30/87
- --------------------------------------------------------------------------------------------------------------
Blue Chip Growth 23.82% N/A 7.78% 12/11/92
- --------------------------------------------------------------------------------------------------------------
Real Estate Securities* 32.49% 15.61% 11.48% 4/30/87
- --------------------------------------------------------------------------------------------------------------
Int'l Growth & Income 10.75% N/A 8.08% 1/09/95
- --------------------------------------------------------------------------------------------------------------
Growth and Income 20.81% 12.67% 12.83% 4/23/91
- --------------------------------------------------------------------------------------------------------------
Equity-Income 17.88% N/A 12.67% 2/19/93
- --------------------------------------------------------------------------------------------------------------
Aggressive Asset Allocation 11.13% 8.66% 7.16% 8/03/89
- --------------------------------------------------------------------------------------------------------------
Moderate Asset Allocation 8.15% 7.46% 6.42% 8/03/89
- --------------------------------------------------------------------------------------------------------------
Conservative Asset 5.27% 5.97% 5.52% 8/03/89
Allocation
- --------------------------------------------------------------------------------------------------------------
Strategic Bond 12.80% N/A 7.22% 2/19/93
- --------------------------------------------------------------------------------------------------------------
Global Government Bond 11.15% 8.01% 7.77% 3/18/88
- --------------------------------------------------------------------------------------------------------------
Capital Growth Bond* 0.80% 4.88% 5.68% 6/26/84
- --------------------------------------------------------------------------------------------------------------
Investment Quality Bond** 0.89% 4.88% 6.45% 4/23/91
- --------------------------------------------------------------------------------------------------------------
U.S. Government 1.67% 4.43% 6.08% 5/01/89
Securities***
- --------------------------------------------------------------------------------------------------------------
Money Market 3.32% 2.40% 3.82% 6/18/85
- --------------------------------------------------------------------------------------------------------------
</TABLE>
* On December 31, 1996, Manulife Series Fund, Inc. merged with NASL Series
Trust. Performance presented for these sub-accounts is based upon the
performance of the respective predecessor Manulife Series Fund portfolio for
periods to December 31, 1996. Performance for each of these sub-accounts is
based on the historical performance of the predecessor Manulife Series Fund
portfolio and reflects the current expenses that an investor would have incurred
as a holder of units of the sub-account.
** Because the Investment Quality Bond Trust changed its subadviser and
investment objective effective April 23, 1991, the Company has elected to quote
performance for the Investment Quality Bond Sub-account only since the date of
change in order to quote returns representative of its current objective and
produced by its current portfolio manager. Per share information concerning the
period prior to the
5
<PAGE> 52
change appears in the Trust's Prospectus. Average annual total rates of return
for the one, five, and ten year periods for the sub-account are available upon
request.
*** The U.S. Government Securities Sub-account commenced operations on March 18,
1988 by investing in shares of the Convertible Securities Trust. That Trust
changed its investment objective and its investment Subadviser effective May 1,
1989, pursuant to a vote of its shareholders. In view of the change in
investment objective and portfolio manager, the U.S. Government Securities
Sub-account has elected to quote performance only since the date of the change
in order to quote returns representative of its current objective and produced
by its current portfolio manager. Per share information concerning the period
prior to the change appears in the Trust's Prospectus. Average annual total
rates of return for the one, five, and ten year periods for the sub-account are
available upon request.
* * * * *
In addition to the non-standardized returns quoted above, each of the
sub-accounts may from time to time quote aggregate non-standardized total
returns calculated in the same manner as set forth above for other time periods.
From time to time the Trust may include in its advertising and sales literature
general discussions of economic theories, including but not limited to,
discussions on how demographic and political trends can affect the financial
markets. Further, the Trust may also include in its advertising and sales
literature specific information on each of the Trust's subadvisers, including
but not limited to, research capabilities of a subadviser, assets under
management, information relating to other clients of a subadviser, and other
generalized information.
SERVICES
INDEPENDENT AUDITORS
The financial statements of the Company and the Variable Account at
December 31, 1996 and for the year then ended appearing in this Statement of
Additional Information have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere herein, and
is included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
The consolidated balance sheet as of December 31, 1995 and the
consolidated statements of operations, capital surplus, and cash flows for each
of the two years in the period ended December 31, 1995, appearing in this
Statement of Additional Information have been included herein in reliance on
the report, which includes language explaining the basis of accounting used and
whose opinion is modified in consideration of the fact that such basis of
accounting after 1996 (upon issuance of 1996 financial statements) differs from
generally accepted accounting principles, of Coopers & Lybrand L.L.P.,
independent accountants given on the authority of said firm as experts in
accounting and auditing.
The financial statements of the Company which are included in the
Statement of Additional Information should be considered only as bearing on the
ability of the Company to meet its obligations under the contracts. They
should not be considered as bearing on the investment performance of the assets
held in the Variable Account.
SERVICING AGENT
Vantage Computer Systems, Inc. ("Vantage") provides to the Company a
computerized data processing recordkeeping system for variable annuity
administration. Vantage provides various daily, semimonthly, monthly, semiannual
and annual reports including: daily updates on accumulation unit values,
variable annuity participants and transactions, agent production and
commissions; semimonthly commission statements; monthly summaries of agent
production and daily transaction reports; semiannual statements for contract
owners; and annual contract owner tax reports. Vantage receives approximately
$7.50 per policy per year, plus certain other fees paid by the Company for the
services provided.
6
<PAGE> 53
PRINCIPAL UNDERWRITER
NASL Financial Services, Inc., a wholly-owned subsidiary of the
Company, serves as principal underwriter of the contracts. Contracts are offered
on a continuous basis. The aggregate dollar amount of underwriting commissions
paid to NASL Financial Services, Inc. in 1996, 1995 and 1994 were $83,031,288,
$68,782,161 and $69,999,469 respectively. The amounts retained by NASL Financial
Services, Inc. during such periods were $0, $0 and $0, respectively.
CANCELLATION OF CONTRACT
The Company may, at its option, cancel a contract at the end of any two
consecutive contract years in which no purchase payments by or on behalf of the
contract owner have been made, if both (i) the total purchase payments made for
the contract, less any withdrawals, are less than $2,000; and (ii) the contract
value at the end of such two year period is less than $2,000. The Company, as a
matter of administrative practice, will attempt to notify a contract owner prior
to such cancellation in order to allow the contract owner to make the necessary
purchase payment to keep the contract in force.
7
<PAGE> 54
AUDITED STATUTORY-BASIS
FINANCIAL STATEMENTS
NORTH AMERICAN SECURITY
LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF
NAWL HOLDING COMPANY, INC.)
Years ended December 31, 1996, 1995
and 1994
<PAGE> 55
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Audited Statutory-Basis Financial Statements
Years ended December 31, 1996, 1995 and 1994
CONTENTS
Report of Independent Auditors.................................................1
Audited Statutory-Basis Financial Statements
Balance Sheets-Statutory-Basis.................................................2
Statements of Operations-Statutory-Basis.......................................3
Statement of Changes in Capital and Deficit-Statutory-Basis....................4
Statements of Cash Flows-Statutory-Basis.......................................5
Notes to Statutory-Basis Financial Statements..................................6
<PAGE> 56
Report of Independent Auditors
Board of Directors and Shareholder
North American Security Life Insurance Company
We have audited the accompanying statutory-basis balance sheet of North American
Security Life Insurance Company (a wholly-owned subsidiary of NAWL Holding
Company, Inc.) as of December 31, 1996, and the related statutory-basis
statements of operations, changes in capital and deficit and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Insurance Department of the State of Delaware, which practices
differ from generally accepted accounting principles. The variances between such
practices and generally accepted accounting principles are also described in
Note 1. The effects on the financial statements of these variances are not
reasonably determinable but are presumed to be material.
In our opinion, because of the effects of the matter described in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of North American Security Life Insurance Company at December 31, 1996, or the
results of its operations or its cash flows for the year then ended.
Also, in our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of North American Security Life
Insurance Company at December 31, 1996 and the results of its operations and its
cash flows for the year then ended in conformity with accounting practices
prescribed or permitted by the Insurance Department of the State of Delaware.
Ernst & Young LLP
Boston, Massachusetts
February 25, 1997
<PAGE> 57
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
North American Security Life Insurance Company:
We have audited the accompanying statutory statements of admitted assets,
liabilities, capital and surplus of North American Security Life Insurance
Company (a wholly-owned subsidiary of North American Life Assurance Company of
New York, Canada) as of December 31, 1995 and the related statutory statements
of operations, capital and surplus, and cash flows for the two years in the
period ended December 31, 1995. These statutory financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described more fully in Note 1 to the financial statements, the Company
prepared these financial statements using accounting practices prescribed or
permitted by the Insurance Department of the State of Delaware (SAP), which
practices after 1996 (upon issuance of 1996 financial statements) differ from
generally accepted accounting principles (GAAP). The effects on the financial
statements of the variances between SAP and GAAP are not currently determinable.
In our report dated February 23, 1996, we expressed our opinion that the 1995
and 1994 financial statements, prepared using SAP, presented fairly, in all
material respects, the financial position of North American Security Life
Insurance Company as of December 31, 1995 and the results of its operations, and
its cash flows for the two years in the period ended December 31, 1995 in
conformity with GAAP. As described in Note 1 to the financial statements,
financial statements of wholly-owned stock life subsidiaries of mutual life
insurance enterprises prepared in accordance with SAP are no longer considered
to be presented in conformity with GAAP. Accordingly, our present opinion on the
1995 and 1994 financial statements as presented herein is different from that
expressed in our previous report.
<PAGE> 58
In our opinion, because of the effects of the matter discussed in the two
preceding paragraphs, the financial statements referred to above do not present
fairly in conformity with GAAP, the financial position of North American
Security Life Insurance Company as of December 31, 1995, or the results of its
operations or its cash flows for the two years in the period ended December 31,
1995.
In our opinion, the statutory financial statements referred to above present
fairly, in all material respects the financial condition of North American
Security Life Insurance Company as of December 31, 1995, and the results of its
operations and its cash flows for the two years in the period ended December 31,
1995, on the basis of accounting described in Note 1.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 23, 1996, except for the information
in Note 1 - "Basis of Presentation", for which
the date is February 21, 1997
<PAGE> 59
<TABLE>
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Balance Sheets--Statutory-Basis
<CAPTION>
DECEMBER 31
1996 1995
---------------------------------
<S> <C> <C>
ADMITTED ASSETS
Investments:
Bonds $ 13,848,316 $ 16,281,452
Common stocks 30,305,498 20,097,789
Real estate 2,268,120 4,847,164
Cash and short-term investments 7,321,515 1,797,230
Policy loans 454,026
---------------------------------
Total investments 54,197,475 43,023,635
Accrued investment income 278,106 431,415
Other assets 4,008,003 4,320,909
Separate account assets 6,459,289,860 4,914,727,917
---------------------------------
Total admitted assets $6,517,773,444 $4,962,503,876
=================================
LIABILITIES, CAPITAL AND DEFICIT
Liabilities:
Aggregate reserves $ 3,674,617 $ 1,931,894
Payable to parent, subsidiaries and affiliates 405,711 3,033,665
Funds held account from reinsurers 6,000,000 9,000,000
Amount payable on reinsurance ceded 8,122,060 7,256,229
Transfers from separate accounts, net (188,238,440) (156,458,903)
Borrowed money 138,200,680 107,865,148
Accrued interest on surplus note 1,591,232 3,248,219
Asset valuation reserve 2,089,490 2,895,914
Bank overdraft 7,598,444 8,606,730
Other liabilities 9,486,084 10,239,069
Separate account liabilities 6,459,289,860 4,914,727,917
---------------------------------
Total liabilities 6,448,219,738 4,912,345,882
Capital and deficit:
Surplus note payable to Parent 20,000,000 20,000,000
Common stock (par value $1,000 per share--authorized,
3,000 shares; issued and outstanding, 2,600 shares) 2,600,000 2,600,000
Paid-in capital in excess of par value 128,633,000 110,633,000
Unassigned deficit (81,679,294) (83,075,006)
---------------------------------
Total capital and deficit 69,553,706 50,157,994
---------------------------------
Total liabilities, capital and deficit $6,517,773,444 $4,962,503,876
=================================
</TABLE>
See accompanying notes.
2
<PAGE> 60
<TABLE>
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Statements of Operations--Statutory-Basis
<CAPTION>
YEARS ENDED DECEMBER 31
1996 1995 1994
-------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Premiums, annuity considerations and
deposits
$1,027,373,531 $ 991,551,945 $1,139,953,302
Net investment income 5,172,160 35,909,722 30,559,559
Commissions and expense allowances on
reinsurance ceded 25,222,953 14,676,544 7,019,266
Experience refunds on reinsurance ceded 3,880,075 3,901,633 4,967,753
Reserve adjustments on reinsurance (16,460,475) (48,222,552) (6,023,746)
-------------------------------------------------------
Total revenues 1,045,188,244 997,817,292 1,176,476,134
Expenses:
Annuity benefits 381,764,918 269,688,906 206,710,232
Increase (decrease) in reserves 1,742,723 (517,160,712) 146,552,124
Increase in separate account liability 525,172,444 415,529,185 732,768,257
Commissions 82,257,073 73,593,478 81,981,046
General expenses 27,587,265 22,872,812 19,253,764
Interest expense 9,822,477 8,980,132 4,599,441
Recapture fee on reinsurance ceded 11,160,053 1,445,889 8,029,909
Initial consideration on reinsurance ceded 3,204,498 727,522,634
-------------------------------------------------------
Total expenses 1,042,711,451 1,002,472,324 1,199,894,773
Gain (loss) before federal income tax provision
and realized capital gains (losses) 2,476,793 (4,655,032) (23,418,639)
Federal income tax provision 85,252 6,415
-------------------------------------------------------
Gain (loss) after federal income tax provision 2,391,541 (4,655,032) (23,425,054)
Net realized capital gains (losses) 675,367 (2,632,953) (7,029,018)
-------------------------------------------------------
Net income (loss) $ 3,066,908 $ (7,287,985) $ (30,454,072)
=======================================================
</TABLE>
See accompanying notes.
3
<PAGE> 61
<TABLE>
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Statements of Changes in Capital and Deficit--Statutory-Basis
<CAPTION>
PAID-IN
CAPITAL IN
SURPLUS EXCESS OF PAR UNASSIGNED TOTAL CAPITAL
NOTE COMMON STOCK VALUE DEFICIT AND DEFICIT
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1994 $20,000,000 $2,000,000 $ 81,233,000 $(51,510,475) $ 51,722,525
Net loss (30,454,072) (30,454,072)
Issuance of common stock 600,000 600,000
Paid-in capital in excess of par 29,400,000 29,400,000
Increase in non-admitted assets (1,859,181) (1,859,181)
Initial commission allowance on
reinsurance ceded 4,508,719 4,508,719
Decrease in asset valuation
reserves 1,976,033 1,976,033
Change in net realized gains and
losses 3,514,108 3,514,108
------------------------------------------------------------------------------
Balances at December 31, 1994 20,000,000 2,600,000 110,633,000 (73,824,868) 59,408,132
Net loss (7,287,985) (7,287,985)
Increase in non-admitted assets (958,941) (958,941)
Initial commission allowance on
reinsurance ceded (3,007,823) (3,007,823)
Decrease in asset valuation
reserves 2,640,946 2,640,946
Change in net realized gains and
losses (636,335) (636,335)
------------------------------------------------------------------------------
Balances at December 31, 1995 20,000,000 2,600,000 110,633,000 (83,075,006) 50,157,994
Net income 3,066,908 3,066,908
Paid-in capital in excess of par 18,000,000 18,000,000
Decrease in non-admitted assets 1,619,796 1,619,796
Initial commission allowance on
reinsurance ceded (3,280,000) (3,280,000)
Decrease in asset valuation
reserves 806,424 806,424
Change in net realized gains and
losses (817,416) (817,416)
------------------------------------------------------------------------------
Balances at December 31, 1996 $20,000,000 $2,600,000 $128,633,000 $(81,679,294) $ 69,553,706
==============================================================================
</TABLE>
4
<PAGE> 62
<TABLE>
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc
Statements of Cash Flows--Statutory-Basis
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
-----------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Annuity considerations and deposits $1,027,373,531 $ 991,551,945 $1,139,953,302
Net investment income 2,264,748 32,128,833 28,230,341
Allowances and reserve adjustments on
reinsurance ceded 8,762,478 (33,546,008) 1,140,018
Experience refund on reinsurance ceded 3,880,075 3,901,633 4,967,753
Surrender benefits and other fund withdrawals paid (350,317,143) (232,650,150) (175,523,156)
Other benefits paid to policyholders (32,009,867) (36,860,052) (30,555,923)
Commissions, other expenses and taxes paid (109,382,073) (97,024,418) (100,210,171)
Net transfers to separate account (556,059,964) (423,952,090) (768,208,239)
Other operating expenses paid (25,079,045) (737,948,655) (12,780,263)
-----------------------------------------------------
Net cash (used for) provided by operating
activities (30,567,260) (534,398,962) 87,013,662
INVESTING ACTIVITIES
Proceeds from investments sold, matured or repaid:
Bonds 9,607,009 763,005,273 112,385,919
Stocks 12,737,781 5,080,010 5,805,050
Mortgage loans 110,791,047 14,076,659
Real estate 1,602,063 860,375 5,950,412
Net gains on cash and short term investments 408
Cost of investments acquired:
Bonds (6,890,585) (441,405,890) (232,208,934)
Stocks (19,333,533) (10,137,862) (488,212)
Mortgage loans (136,101) (4,301,717)
Policy loans (454,026) 2,579,308 (791,723)
-----------------------------------------------------
Net cash (used for) provided by investing
activities (2,730,883) 430,636,160 (99,572,546)
OTHER CASH PROVIDED (APPLIED)
Capital and surplus paid-in 18,000,000 30,000,000
Borrowed money 30,864,052 7,000,000 70,000,000
Other sources 4,194,113 11,380,829 17,892,210
Other applications (14,235,737) (14,398,973) (103,250,950)
-----------------------------------------------------
Net other cash provided 38,822,428 3,981,856 14,641,260
-----------------------------------------------------
Net increase (decrease) in cash and short-term
investments 5,524,285 (99,780,946) 2,082,376
Cash and short-term investments at beginning of
year 1,797,230 101,578,176 99,495,800
-----------------------------------------------------
Cash and short-term investments at end of year $ 7,321,515 $ 1,797,230 $ 101,578,176
=====================================================
</TABLE>
See accompanying notes.
5
<PAGE> 63
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
North American Security Life Insurance Company (the Company) is a wholly-owned
subsidiary of NAWL Holding Company Inc. (NAWL). NAWL holds all the outstanding
shares of the Company and Wood Logan Associates, Inc. (WLA). Manufacturers Life
Insurance Company (MLI) owns all Class A shares of NAWL, representing 85% of the
voting shares of NAWL. Certain employees of WLA own all Class B shares, which
represent the remaining 15% voting interest in NAWL.
On January 1, 1996, North American Life Assurance Company, (NAL), the Company's
previous owner, merged with MLI. Effective January 1, 1996, immediately
following the merger, the Company's Parent went through a corporate
restructuring which resulted in the formation of a newly organized holding
corporation, NAWL.
The Company issues fixed and variable annuity contracts (the contracts). Amounts
invested in the fixed portion of the contracts are allocated to the General
Account of the Company (see Note 6 on fixed annuity reinsurance). Amounts
invested in the variable portion of the contracts are allocated to the separate
accounts of the Company. The separate account assets are invested in shares of
the NASL Series Trust, a no-load, open-end management investment company
organized as a Massachusetts business trust.
On June 19, 1992, the Company formed First North American Life Assurance Company
(FNA). Subsequently, on July 22, 1992, FNA was granted a license by the New York
State Insurance Department. FNA issues variable and fixed annuity contracts in
the State of New York.
NASL Financial Services Inc. (NASL Financial), a wholly-owned subsidiary of the
Company, acts as investment adviser to the NASL Series Trust and as principal
underwriter of the annuity and variable life contracts issued by the Company
and annuity contracts issued by FNA. NASL Financial has a promotional agreement
with WLA to act as the promotional agent for the sale of annuity and variable
life contracts.
6
<PAGE> 64
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements (continued)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements requires management to make estimates
and assumptions that affect amounts reported in the financial statements and
accompanying notes. Such estimates and assumptions could change in the future as
more information becomes known which would impact the amounts reported and
disclosed herein.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with
accounting practices prescribed or permitted by the Insurance Department of the
State of Delaware, which practices differ from generally accepted accounting
principals (GAAP).
The 1995 financial statements presented for comparative purposes were previously
described as being prepared in accordance with GAAP for stock life insurance
subsidiaries of a mutual life parent. Pursuant to FASB Interpretation 40,
Applicability of Generally Accepted Accounting Principals to Mutual Life
Insurance and Other Enterprises (FIN 40), as amended, which is effective for
1996 annual financial statements, financial statements based on statutory
accounting practices can no longer be described as prepared in conformity with
GAAP. Furthermore, financial statements prepared in conformity with statutory
accounting practices for periods prior to the effective date of FIN 40 are not
considered GAAP presentations when presented in comparative form with the
financial statements for periods subsequent to the effective date. Accordingly,
the 1995 financial statements are no longer considered to be presented in
conformity with GAAP.
The more significant variances from GAAP are as follows:
Investments: Investments in bonds are reported at amortized cost based on their
National Association of Insurance Commissioners (NAIC) rating; for GAAP, such
fixed maturity investments would be designated at purchase as held-to-maturity,
trading, or available-for-sale. Held-to-maturity fixed investments would be
reported at amortized cost, and the remaining fixed maturity investments are
reported at fair value with unrealized holding gains and losses reported in
operations for those designated as trading and as a separate component of
shareholders' equity for those designated as available-for-sale.
7
<PAGE> 65
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements (continued)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Investments in real estate are reported net of related obligations rather than
on a gross basis. Changes between cost and admitted asset investment amounts are
credited or charged directly to unassigned surplus rather than to a separate
surplus account.
The "asset valuation reserve" is determined by an NAIC prescribed formula and is
reported as a liability rather than unassigned surplus. Under GAAP, realized
capital gains and losses would be reported in the income statement on a pretax
basis in the period that the asset giving rise to the gain or loss is sold and
valuation allowances would be provided when there has been a decline in value
deemed other than temporary, in which case, the provision for such declines
would be charged to earnings.
Subsidiaries: The accounts and operations of the Company's subsidiaries are not
consolidated with the accounts and operations of the Company as would be
required under GAAP.
Policy Acquisition Costs: The costs of acquiring and renewing business are
expensed when incurred. Under GAAP, acquisition costs related to investment
products, to the extent recoverable from future gross profits, are amortized
generally in proportion to the present value of expected gross profits from
surrender charges and investment, mortality, and expense margins.
Nonadmitted Assets: Certain assets designated as "nonadmitted," principally
agents' debit balances and furniture and equipment, are excluded from the
accompanying balance sheets and are charged directly to unassigned surplus.
Annuity Considerations and Deposits: Revenues for annuity considerations and
deposits consist of the entire premium received and annuity benefits represent
the death benefits, annuitizations and withdrawals and surrenders paid and the
change in policy reserves. Under GAAP, annuity considerations and deposits
received in excess of policy charges would not be recognized as premium revenue
and annuity benefits would represent the excess of benefits paid over the policy
account value and interest credited to the account values.
Aggregate Reserves: Certain policy reserves are calculated based on statutorily
required interest and mortality assumptions rather than on estimated expected
experience or actual account balances as would be required under GAAP.
8
<PAGE> 66
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements (continued)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reinsurance: Policy and contract liabilities ceded to reinsurers have been
reported as reductions of the related reserves rather than as assets as would be
required under GAAP.
Commissions allowed by reinsurers on business ceded are reported as income when
received rather than being deferred and amortized with deferred policy
acquisition costs.
Federal Income Taxes: Deferred federal income taxes are not provided for
differences between the financial statement amounts and tax bases of assets and
liabilities.
Surplus Notes: Surplus notes are reported as surplus rather than as liabilities.
The effects of the foregoing variances from GAAP on the accompanying
statutory-basis financial statements have not been determined, but are presumed
to be material.
Other significant accounting policies are as follows:
INVESTMENTS AND INVESTMENT INCOME
Investments are valued in accordance with rules promulgated by the National
Association of Insurance Commissioners (NAIC). Bonds not backed by loans are
valued at amortized cost using the constant yield method.
Loan-backed bonds and structured securities are valued at amortized cost using
the constant yield method including anticipated prepayments. Prepayment
assumptions are obtained from broker dealer survey values. These assumptions are
consistent with the current interest rate and economic environment. The
retrospective method is being used to value all securities.
Investment income is recognized on the accrual basis. Unrealized gains or losses
on investments are recorded in unassigned deficit. Realized gains or losses on
investments sold are determined on the basis of the specific identification
method.
Common stocks, excluding investments in subsidiaries, are valued at market
value. The Company's insurance subsidiary is reported at equity in the
underlying statutory-basis of its net assets, and the Company's noninsurance
subsidiary is reported at the GAAP-basis of its net assets. Real estate acquired
in satisfaction of debt is stated at the lower of the appraised market value or
the outstanding principal loan balance plus accrued interest and foreclosed
costs.
9
<PAGE> 67
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements (continued)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In 1996, 1995 and 1994, the Company transferred, in satisfaction of debt,
mortgages with statement values of $0, $2,405,052 and $6,407,174, respectively,
to foreclosed real estate. Subsequently, in 1996, 1995 and 1994, the Company
wrote-down $929,713, $1,360,620, and $0, respectively, on these properties to
reflect the carrying value at the lower of the current market valuation or the
value transferred at the time of foreclosure. At year end, the Company held
$2,268,120 of foreclosed real estate at adjusted book value which approximates
market value.
SHORT-TERM INVESTMENTS
Short-term investments generally consist of treasury bills, commercial paper and
money market instruments whose maturities at the time of acquisition are one
year or less. Short-term instruments are valued at cost, which approximates
market value.
ASSET VALUATION RESERVE AND INTEREST MAINTENANCE RESERVE
The Asset Valuation Reserve (AVR) is designed to mitigate the effect of
valuation and credit related losses on all invested assets with risk of loss
including mortgages, real estate, fixed income securities, and common stocks.
Changes in the AVR are accounted for as a direct increase or decrease in
unassigned surplus.
The Interest Maintenance Reserve (IMR) captures realized capital gains and
losses which result from changes in interest rate for all fixed income
securities and amortizes these capital gains and losses into investment income
over the original life of the investments sold. During 1995, the cumulative net
gains were released from IMR in connection with a reinsurance treaty whereby the
Company reinsured all of its fixed annuity business (see Note 6). This
accounting was approved by the State of Delaware Department of Insurance as a
permitted practice. Total net gains (losses) of $(59,933) were transferred into
IMR and $541,484 was amortized and included in net investment income in 1994.
10
<PAGE> 68
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements (continued)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PREMIUMS, ANNUITY CONSIDERATIONS AND DEPOSITS AND RELATED EXPENSES
Premiums, annuity considerations and deposits are recognized as revenue when
received. Expenses, including acquisition costs such as commissions and other
costs in connection with acquiring new business, are charged to operations as
incurred.
AGGREGATE RESERVES
The reserves, developed using accepted actuarial methods, have been established
and maintained on the basis of published mortality tables and prescribed
interest rates per the National Association of Insurance Commissioners' standard
valuation law, as adopted by the State of Delaware. The method used for the
valuation of annuities is the Commissioner's Annuity Reserve Valuation Method
(CARVM). Under this method the reserve is the highest present value of all
future guaranteed cash surrender values.
Surrender values on policies do not exceed the corresponding reserves.
Additional reserves are established when the results of cash flow testing under
various interest rate scenarios indicate the need for such reserves.
SEPARATE ACCOUNT
Separate account assets and liabilities reported in the accompanying balance
sheets represent mutual funds that are separately administered for the
exclusive benefit of variable annuity and variable life contractholders and are
reported at fair market value. Since the contractholders receive the full
benefit and bear the full risk of the separate account investments, the income,
realized and unrealized gains and losses from such investments, is offset by an
equivalent change in the liabilities related to the separate accounts.
Transfers from separate account, net, primarily represents the difference
between the contract owner's account value and the CARVM reserve. There are no
reconciling items between the increase in separate account liability as shown
on the statement of operations and the transfers as reported in the Summary of
Operations of the Separate Account Statement. Fees charged on separate account
deposits are included in other income.
11
<PAGE> 69
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements (continued)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Annuity and variable life premiums, considerations and deposits for the separate
accounts, net of reinsurance, are $1,027,373,531, $728,682,163 and $975,538,582
for 1996, 1995 and 1994, respectively.
UNCONSOLIDATED SUBSIDIARIES
The Company records its equity in the earnings of unconsolidated subsidiaries as
net investment income. The Company owns 100% of the outstanding common stock of
First North American Life Assurance Company and NASL Financial Services, Inc.
<TABLE>
Summarized financial data for unconsolidated subsidiaries at December 31, 1996
and 1995 is shown below:
<CAPTION>
1996 1995
----------------------
(In thousands)
<S> <C> <C>
Total assets at year end $471,166 $318,326
Total liabilities at year end 440,862 304,409
Net income 3,175 1,220
</TABLE>
FEDERAL INCOME TAXES
The Company will participate as a member of the NAWL affiliated group, filing a
consolidated federal income tax return. The Company will file separate state
returns.
The method of allocation between companies is subject to a tax sharing
agreement. The tax liability is allocated to each member on a pro rata basis
based on the relationship the member's tax liability (computed on a separate
return basis) bears to the tax liability of the consolidated group. The tax
charge to the Company shall not be more than the Company would have paid on a
separate return basis.
Income before federal income taxes differs from taxable income principally due
to policy acquisition costs, differences in annuity reserves for tax and
financial reporting purposes, the equity earnings of unconsolidated subsidiaries
and reinsurance allowances.
12
<PAGE> 70
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements (continued)
2. PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company's statutory-basis financial statements are prepared in accordance
with accounting practices prescribed or permitted by the Insurance Department of
the State of Delaware. "Prescribed" statutory accounting practices include state
laws, regulations, and general administrative rules, as well as a variety of
publications of the NAIC. "Permitted" statutory accounting practices encompass
all accounting practices that are not prescribed, such practices may differ from
state to state, may differ from company to company within a state, and may
change in the future. The NAIC currently is in the process of recodifying
statutory accounting practices, the result of which is expected to constitute
the only source of "prescribed" statutory accounting practices. Accordingly,
that project, which is expected to be completed in 1997, will likely change, to
some extent, prescribed statutory accounting practices, and may result in
changes to the accounting practices that the Company uses to prepare its
statutory financial statements. The impact of any such changes on the Company's
statutory-surplus cannot be determined at this time and could be material.
3. INVESTMENTS
<TABLE>
The major components of investment income are as follows:
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
-------------------------------------------
<S> <C> <C> <C>
Amortization of IMR $11,040,025 $ 541,484
Equity in undistributed income
(loss) of subsidiaries $ 3,086,798 (482,580) 737,688
Bonds 719,462 18,046,504 16,182,157
Common stock 34,993 137,862 498,222
Short-term investments 199,114 2,642,678 1,664,563
Mortgage loans 5,420,613 12,026,724
Real estate 774,673 1,071,080 1,248,043
Policy loan interest (32,300) 10,658
Interest rate swap 1,632,000
Investment expenses (1,274,880) (1,934,160) (2,349,980)
-------------------------------------------
Net investment income $ 5,172,160 $35,909,722 $30,559,559
===========================================
</TABLE>
13
<PAGE> 71
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
<TABLE>
The amortized and estimated fair value of investments in debt securities at
December 31, 1996 and 1995 are as follows:
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
DECEMBER 31, 1996:
U.S. Treasury securities and
obligations of U.S. Government
agencies
$ 6,916 $144 $ 27 $ 7,033
Corporate debt securities 6,009 2 17 5,994
Mortgage-backed securities 923 19 4 938
-------------------------------------------
Totals $13,848 $165 $ 48 $13,965
===========================================
DECEMBER 31, 1995:
U.S. Treasury securities and
obligations of U.S. Government
agencies
$ 8,998 $362 $ 3 $ 9,357
Corporate debt securities 3,672 125 3 3,794
Mortgage-backed securities 3,611 195 3,806
-------------------------------------------
Totals $16,281 $682 $ 6 $16,957
===========================================
</TABLE>
14
<PAGE> 72
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
<TABLE>
The amortized cost and estimated fair value of debt securities at December 31,
1996 by the contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers or lenders may have the
right to call or prepay obligations with or without call or prepayment
penalties.
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
---------------------------
(In thousands)
<S> <C> <C>
Due in one year or less $ 7,136 $ 7,156
Due after one year through five years 3,494 3,539
Due after five years through ten years 1,938 1,914
Due after ten years 357 418
Mortgage-backed securities 923 938
---------------------------
Total $13,848 $13,965
===========================
</TABLE>
The proceeds from sales of debt securities for the years ended December 31,
1996, 1995 and 1994 were $8,593,009, $743,955,966 and $74,622,566, respectively.
In 1996, gross gains and losses recognized on the sales were $338,975 and
$1,775, respectively. In 1995, gross gains and losses on the sales were
$10,452,916 and $2,035,657, respectively. In 1994, gross gains and losses on the
sales were $1,600,852 and $1,660,785, respectively. Net realized gains (losses)
of $0, $8,417,259 and $(59,933) for the years ended December 31, 1996, 1995 and
1994, respectively, were transferred to IMR.
Debt securities with a carrying value of $5,458,635 and $5,600,444 at December
31, 1996 and 1995, respectively, were on deposit with, or in custody accounts on
behalf of certain state insurance departments.
4. FEDERAL INCOME TAXES
At December 31, 1996 and 1995, the Company had operating loss carryforwards of
approximately $32,000,000 and $36,000,000, respectively, which expire between
2007 and 2010. During 1996, the Company utilized approximately $4,000,000 in net
operating loss carryforwards to reduce taxable income.
15
<PAGE> 73
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements (continued)
5. LIFE AND ANNUITY ACTUARIAL RESERVES
The Company issues flexible premium deferred combination fixed and variable
annuity contracts and variable life insurance contracts. Reserves for these
contracts are established using the Commissioners Annuity Reserve Valuation
Method (CARVM) and the Commissioner's Reserve Valuation Method (CRVM) as
adopted by the State of Delaware Insurance Department. The reserves for the
fixed portion of the contracts are subject to an indemnity reinsurance
agreement and the reserves for the variable portion of the contracts are held
in the separate account. The Company has reinsured its Minimum Guaranteed Death
Benefit risks, and accordingly, is holding no reserve for this risk, which
relates to the excess of Death Benefit over policyholder Account Value. The
Company does not offer surrender values in excess of the reserves.
<TABLE>
Withdrawal characteristics of Annuity Actuarial Reserves and Deposit Liabilities
are as follows:
<S> <C> <C>
Subject to discretionary withdrawal with market
value adjustment
$ 385,506,134 5.64%
Subject to discretionary withdrawal at book value
less surrender charge (5% or more) 139,439,719 2.04
Subject to discretionary withdrawal at market value 6,269,263,219 91.75
Subject to discretionary withdrawal at book value 18,704,535 .27
------------------------
Subtotal 6,812,913,607 99.70
Not subject to discretionary withdrawal provision 20,342,476 .30
------------------------
Total annuity actuarial reserve and deposit fund
liabilities
6,833,256,083 100%
Expense gap reserve 1,298,797
Reinsurance ceded (559,828,843)
------------------------
Total net annuity actuarial reserves and deposit
funds liabilities $6,274,726,037
========================
</TABLE>
6. REINSURANCE
Reinsurance premiums and benefits paid or provided are accounted for on bases
consistent with those used in accounting for the original policies issued and
the terms of the reinsurance contracts. Reinsurance transactions have been
entered into primarily to improve cash flow and statutory capital.
16
<PAGE> 74
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements (continued)
6. REINSURANCE (CONTINUED)
Effective June 30, 1995, an indemnity coinsurance agreement was entered into
between the Company and Peoples Security Life Insurance Company (Peoples or the
Reinsurer), a AAA rated subsidiary of the Providian Corporation, to reinsure
both in force and new fixed annuity business written by the Company.
The indemnity aspects of the agreement provide that the Company remains liable
for the contractual obligations whereas the Reinsurer agrees to indemnify the
Company for any contractual claims incurred. The coinsurance aspects of the
agreement require the Company to transfer all assets backing the fixed annuity
obligations to the Reinsurer together with all future fixed premiums received by
the Company for fixed annuity contracts. Once transferred, the assets belong to
the Reinsurer. In exchange, the Reinsurer reimburses the Company for all claims
and provides expense allowances to cover commissions and other costs associated
with the fixed annuity business.
The Reinsurer is responsible for investing the asset and is at risk for any
potential investment gains and losses. There is no recourse back to the Company
if investment losses are incurred. Under this agreement, the Company will
continue to administer the fixed annuity business for which it will earn an
expense allowance. The Company has set up a reserve of $1,298,797 and $1,931,894
at December 31, 1996 and 1995, respectively, to recognize that expense
allowances received from Providian under this indemnity coinsurance agreement do
not fully reimburse the Company for overhead expenses allocated to the fixed
annuity line of business.
The reinsurance agreement required the Company to transfer to the Reinsurer a
consideration of $726.7 million in cash or securities, to cover all in force
business as of June 30, 1995.
<TABLE>
The financial impact of the reinsurance agreement was as follows (in millions):
<S> <C>
Net loss from operations:
Consideration paid to reinsurer $(726.7)
Net reserves reinsured 725.1
Expense gap reserve (1.9)
-------
(3.5)
Capital and surplus adjustments:
Release of IMR 11.0
Market loss on sale of mortgages (2.2)
Release of bond and mortgage asset valuation reserve 4.7
-------
Net impact on surplus $ 10.0
=======
</TABLE>
17
<PAGE> 75
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements (continued)
6. REINSURANCE (CONTINUED)
Effective July 1, 1995 and August 1, 1995, the Company entered into treaties
with the Connecticut General Life Insurance Company (CIGNA) and Swiss Re Life
Insurance Company, respectively, to reinsure its Minimum Death Benefit Guarantee
risks. Each company has assumed 50% of the risk. In addition, the Company
reinsured 50% of its risk related to the waiving of surrender charges at death
with CIGNA. The Company is paying the reinsurers an asset based premium, the
level of which varies with both the amount of exposure to this risk and the
realized experience.
Effective November 1, 1995, the Company entered into a treaty with Transamerica
Occidential Life Insurance Company. Transamerica will reinsure a 50% quota share
of the variable portion of the Company's VLI contracts. In addition,
Transamerica will also reinsure 80% of this product's net amount at risk in
excess of the Company's retention limit of $100,000 on a YRT basis.
During 1984, the Company assumed from its Parent, NAL, approximately 26% of
NAL's ordinary and group vested annuity contracts issued in the United States
prior to 1983. In December 1989, the percentage assumed was increased to 90%. On
March 31, 1995, this agreement was 100% recaptured. To effect this recapture,
the Company paid NAL $1,445,889. At December 31, 1996 and 1995, the Company had
no liability for future policy benefits under this contract.
Effective October 1, 1988, the Company ceded 18% of its variable annuity
contracts (policy from 203-VA) to its parent NAL under a modified coinsurance
agreement. Under this agreement, NAL provides the Company with an expense
allowance on reinsured premiums which is repaid out of a portion of future
profits on the business reinsured. The agreement provides full risk transfer of
mortality, persistency and investment performance to the reinsurer with respect
to the portion reinsured. Effective July 1, 1992, the quota share percentage was
increased to 36%.
On December 31, 1993, the Company entered into a modified coinsurance agreement
with an ITT Lyndon Life, a non-related third party to cede the remaining 64% of
the Company's variable annuity contracts (policy form 203-VA) and 95% of the
Company's new variable annuity contract series issued in 1994 (policy form Ven
10). The Company received approximately $25 million in cash representing
withheld premiums of $15 million and $10 million ceding commission. The amounts
of withheld premiums will be repaid with interest over five years. The ceding
commission is payable out of future profits generated by the business reinsured.
18
<PAGE> 76
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements (continued)
6. REINSURANCE (CONTINUED)
Effective December 31, 1994, the Company recaptured its reinsurance with NAL.
Upon recapture, 1994 operating results were negatively impacted by a one-time
recapture fee of approximately $6.5 million. Concurrent with this transaction,
the Company ceded 31% of the recaptured contracts (policy form 203-VA) to ITT
Lyndon Life bringing the portion of these contracts reinsured by ITT Lyndon to
95%. In return, the Company received consideration of $5.2 million which is
reflected as a surplus adjustment to be amortized into income in future years.
During 1996, $3.0 million was amortized into income.
Effective December 31, 1994, the Company entered into an indemnity reinsurance
agreement with Paine Webber Life to reinsure a portion of its policy forms
207-VA, VFA, VENTURE.001, and VENTURE.003. The quota share percentage varies
between 15% and 35% depending on the policy form. The form of reinsurance is
modified coinsurance and only covers the variable portion of contracts written
by Paine Webber brokers. The Company received an allowance of $1,580,896 to
complete this transaction. All elements of risk (including mortality,
persistency, investment performance) have been transferred with the exception of
the minimum death benefit guarantee. The Company receives an allowance to cover
the expected cost of the minimum death benefit guarantee.
In the event of insolvency of a reinsurer, the Company remains primarily liable
to its policyholders. Failure of reinsurers to honor their obligations could
result in losses to the Company and, accordingly, the Company periodically
monitors the financial condition of its reinsurers.
The Company has not entered into any reinsurance agreements in which the
reinsurer may unilaterally cancel any reinsurance for reasons other than
nonpayment of premiums or other similar credits or a significant change in the
ownership of the Company. The Company does not have any reinsurance agreements
in effect in which the amount of losses paid or accrued through December 31,
1996 would result in a payment to the reinsurer of amounts which, in the
aggregate and allowing for offset of mutual credits from other reinsurance
agreements with the same reinsurer, exceed the total direct premiums collected
under the reinsured policies.
The Company has estimated that the aggregate reduction in surplus that would
occur if all reinsurance agreements currently in effect were terminated would be
$14,178,002 at December 31, 1996.
19
<PAGE> 77
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements
7. RELATED-PARTY TRANSACTIONS
In connection with the fixed annuity indemnity coinsurance agreement entered
into in 1995 (see Note 6), the Company pooled its mortgage portfolio (book value
of approximately $106 million) and transferred a senior participation interest
to an affiliate of the reinsurer. The senior interest was transferred for a
purchase price of approximately $72 million and entitles an affiliate of the
reinsurer to 100% of the cash flows produced by the portfolio until they recover
in full the purchase price with interest at a rate of 7.52%. The remaining
residual interest was transferred to First North American Realty, Inc., a
wholly-owned subsidiary of the former Parent for a purchase price of $33
million. As a result of the sale of the senior and residual interests in the
Company's mortgages, the Company has no further economic interest in any
mortgages and hence has reported zero mortgage loan assets on its balance sheet
as of December 31, 1995.
The Company utilizes various services administered by MLI in 1996 and NAL for
1995 and 1994, such as payroll and investment accounting. The charges for these
services were approximately $6,053,000, $295,000 and $234,000 in 1996, 1995 and
1994, respectively. During 1996, MLI changed the allocation method of expenses
subsequent to the merger with NAL. At December 31, 1996 and 1995, the Company
had a net liability to MLI of $4,348,511 and NAL of $5,928,889, respectively.
The Company's annuity and insurance contracts are distributed through NASL
Financial pursuant to an underwriting agreement. NASL Financial has entered into
an agreement with Wood Logan Associates, an affiliate, to act as the promotional
agent for the sale of annuity and variable life contracts. At December 31, 1996,
the Company had a payable to NASL Financial for $999,328 and at December 31,
1995, the Company had a receivable from NASL Financial for $881,119.
The Company provides various services and personnel to FNA for accounting,
actuarial, administration and systems support. These services are allocated on a
pro rata basis and charged as incurred. The total costs allocated for these
services in 1996, 1995 and 1994 were approximately $661,000, $456,000 and
$418,000, respectively. At December 31, 1996, the Company had a net receivable
from FNA for $1,336,725.
The financial statements have been prepared from the records maintained by the
Company and may not necessarily be indicative of the financial conditions or
results of operations that would have occurred if the Company had been operated
as an unaffiliated corporation (see also Notes 1, 3, 6, 8, 9 and 12 for
additional related-party transactions).
20
<PAGE> 78
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements
8. BORROWED MONEY
The Company has an unsecured line of credit with State Street Bank and Trust in
the amount of $10,000,000, bearing interest based on the bank's money market
rate plus 50 basis points. There were no outstanding balances at December 31,
1996 and December 31, 1995. Interest expense was approximately $244,000,
$76,000 and $81,600 in 1996, 1995 and 1994, respectively.
The Company has a revolving credit line with MLI. The original term of the
agreement was seven years. Each additional borrowing under the agreement has a
seven year term from the date of each additional borrowing. The balance
outstanding at December 31, 1996 is $137,864,052. Principal and interest is
payable in quarterly installments. The interest rate is Libor plus 32.5 basis
points. Accrued interest at December 31, 1996 is $336,627.
During 1995, the Company had a $150 million revolving credit and term loan
agreement (the Loan) with the Canadian Imperial Bank of Commerce and Deutsche
Bank AG. The amount outstanding at December 31, 1995 was in the form of a term
loan of $107 million. In April of 1996, the loan was paid in full and the credit
line with MLI described above was established.
On December 20, 1994, the Company received $20,000,000 from its former Parent in
the form of a surplus note agreement with interest at 8%. This surplus note
agreement was assumed by the Parent upon the merger described in Note 1. The
note and accrued interest are subordinated to payments due to policyholders and
other claimants. Principal and interest payments can be made only upon prior
approval of the Insurance Department of the State of Delaware. Interest accrued
at December 31, 1996 and 1995 was $1,591,232 and $3,248,219, respectively.
Interest accrued at December 31, 1995 was paid during 1996.
9. DEFERRED COMPENSATION AND RETIREMENT PLANS
Prior to December 31, 1995, NAL maintained the NALACO Pension Plan (the Plan), a
defined benefit pension plan for all U.S. employees which vests at five years of
service. Sponsorship of this plan was assumed by MLI at the time of the merger.
Benefit payout is a function of years of service and average earnings during the
employee's last five years of service. MLI's funding policy is to contribute
annually the normal cost up to the maximum amount that can be deducted for
federal income tax purposes and to charge each subsidiary for its allocable
share of such contributions based on a percentage of payroll. No pension cost
was allocated to the Company in 1996 or 1995 as the plan was subject to the full
funding limitation under the Internal Revenue Code. At December 31,
21
<PAGE> 79
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements
9. DEFERRED COMPENSATION AND RETIREMENT PLANS (CONTINUED)
1996, the Plan's total accumulated benefit obligation determined in accordance
with SFAS No. 87 and valued at January 1, 1996 based on an assumed interest rate
of 7% was $10,183,862, including vested benefits of $10,094,294 and fair value
of assets of $24,427,811.
The Company sponsors a defined contribution retirement plan pursuant to
regulation 401(k) of the Internal Revenue Code. All employees on September 1,
1990 were eligible to participate. Employees hired after September 1, 1990 will
be eligible after one year of service and attaining age 21. The Company
contributes two percent of base pay plus fifty percent of the employee savings
contribution. The employee savings contribution is limited to six percent of
base pay. The Company contributed $298,997, $203,248 and $167,148 in 1996, 1995
and 1994, respectively.
10. LEASES
The Company leases its office space and various office equipment under operating
lease agreements. For the years ended December 31, 1996, 1995 and 1994, the
Company incurred rent expense of $1,144,402, $1,388,780 and $840,233,
respectively. The Company negotiated a ten-year lease for new office space which
commenced in March 1992. In connection with the lease, the Company was required
to deposit $1,500,000 in an escrow account as security toward fulfilling the
future lease commitment. The balance of the escrow at December 31, 1996 is
$900,000.
<TABLE>
The minimum lease payments associated with the office space and various office
equipment under operating lease agreements is as follows:
<CAPTION>
MINIMUM
LEASE
PAYMENTS
----------
<S> <C>
Year ended:
1997 $1,180,993
1998 1,204,160
1999 1,199,923
2000 1,197,368
2001 1,197,368
Remaining years 1,185,908
----------
Total $7,165,720
==========
</TABLE>
22
<PAGE> 80
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements
10. LEASES (CONTINUED)
The Company also guarantees FNA's office space lease which has an annual cost to
FNA of approximately $80,000.
11. INTEREST RATE SWAP
The Company entered into an interest rate swap in 1995 with Canadian Imperial
Bank of Commerce and Deutsche AG for the purpose of minimizing exposure to
fluctuations in interest rates on a portion of the debt outstanding at that
time. During 1996, the Company terminated this agreement and recognized a gain
of $1.6 million which is recorded as a component of investment income.
12. GUARANTEE AGREEMENT
A guarantee agreement continues in effect, whereby the Parent has agreed to
unconditionally guarantee that it will, on demand, make funds available to the
Company for the timely payment of contractual claims made under fixed annuity
and variable life contracts issued by the Company. The guarantee covers all
outstanding fixed annuity contracts, including those issued prior to the date
of the guarantee agreement.
13. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating the
"fair value" disclosures for financial instruments in the accompanying financial
statements and notes thereto:
Cash and Short-term investments: The carrying amounts reported in the
accompanying balance sheets for these financial instruments approximate their
fair values.
Bonds: Fair values for bonds are based on quoted market prices or dealer quotes,
where applicable. For bonds not actively traded, fair values are estimated using
values obtained from independent pricing services.
Assets and Liabilities of Separate Accounts: Separate account assets and
liabilities are reported at estimated fair value in the Company's balance
sheets.
23
<PAGE> 81
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements
13. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
Aggregate Reserves: Fair values of the Company's liabilities under contracts not
involving significant mortality risk (deferred annuities) are stated at the cost
the Company would incur to extinguish the liability, i.e., the cash surrender
value.
<TABLE>
The following sets forth a comparison of the carrying values and fair values of
the Company's financial instruments at December 31, 1996 and 1995:
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Bonds $ 13,848,316 $ 13,965,000 $ 16,281,452 $ 16,957,000
Common stocks 30,305,498 30,305,498 20,097,789 20,097,789
Cash and short-term investments 7,321,515 7,321,515 1,797,230 1,797,230
Assets held in separate accounts 6,459,289,860 6,459,289,860 4,914,727,917 4,914,727,917
LIABILITIES:
Aggregate reserves for deferred
annuities 3,674,617 3,674,617 1,931,894 1,931,894
Borrowed money 138,200,680 138,200,680 107,865,148 107,865,148
Liabilities held in separate
accounts 6,271,051,420 6,459,289,860 4,758,269,014 4,914,727,917
</TABLE>
24
<PAGE> 82
REPORT OF INDEPENDENT AUDITORS
To the Contract Owners of
NASL Variable Account of North American Security Life Insurance Company:
We have audited the accompanying statement of assets and contract owners' equity
of NASL Variable Account of North American Security Life Insurance Company (the
Company) as of December 31, 1996, and the related statement of operations and
changes in net assets for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1996 financial statements referred to above present fairly,
in all material respects, the financial position of NASL Variable Account of
North American Security Life Insurance Company at December 31, 1996, and the
results of its operations and the changes in its net assets for the year then
ended in conformity with generally accepted accounting principles.
Boston, Massachusetts
February 14, 1997
Ernst & Young LLP
<PAGE> 83
REPORT OF INDEPENDENT ACCOUNTANTS
To the Contract Owners of
NASL Variable Account:
We have audited the accompanying statement of assets and liabilities for the
sub-accounts comprising NASL Variable Account (consisting of the Equity,
Investment Quality Bond, Growth and Income, Blue Chip Growth, Money Market,
Global Equity, Global Government Bond, U.S. Government Securities, Conservative
Asset Allocation, Moderate Asset Allocation, Aggressive Asset Allocation,
Equity-Income, Strategic Bond and International Growth and Income sub-accounts)
of North American Security Life Insurance Company as of December 31, 1995, and
the related statements of operations and changes in net assets of the Equity,
Investment Quality Bond, Growth and Income, Blue Chip Growth, Money Market,
Global Equity, Global Government Bond, U.S. Government Securities, Conservative
Asset Allocation, Moderate Asset Allocation, Aggressive Asset Allocation,
Equity-Income and Strategic Bond sub-accounts for the year then ended and the
related statement of operations and changes in net assets of the International
Growth and Income sub-account for the period January 9, 1995 (date of
commencement of operations) to December 31, 1995. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the aforementioned sub-accounts
comprising NASL Variable Account of North American Security Life Insurance
Company as of December 31, 1995, and the results of their operations and the
changes in their net assets for the year then ended or the period indicated, in
conformity with generally accepted accounting principles.
Boston, Massachusetts
February 23, 1996 Coopers & Lybrand L.L.P.
<PAGE> 84
<TABLE>
NASL VARIABLE ACCOUNT
STATEMENT OF ASSETS AND CONTRACT OWNERS' EQUITY -- December 31, 1996
<CAPTION>
<S> <C>
ASSETS
Investments at market value:
Sub-accounts:
Equity Portfolio - 55,659,921 Shares (Cost $1,027,235,347) $1,259,027,422
Investment Quality Bond Portfolio - 12,225,550 Shares (Cost $140,464,480) 145,361,793
Growth and Income Portfolio - 49,632,317 Shares (Cost $725,093,543) 961,874,305
Blue Chip Growth Portfolio - 27,761,111 Shares (Cost $313,639,693) 397,261,501
Money Market Portfolio - 29,541,451 Shares (Cost $295,414,513) 295,414,513
Global Equity Portfolio - 38,398,475 Shares (Cost $619,556,808) 685,028,787
Global Government Bond Portfolio - 16,035,832 Shares (Cost $215,737,660) 240,056,406
U.S. Government Securities Portfolio - 14,062,113 Shares (Cost $182,722,170) 187,307,348
Conservative Asset Allocation Portfolio - 17,212,472 Shares (Cost $184,856,560) 200,353,173
Moderate Asset Allocation Portfolio - 47,922,107 Shares (Cost $530,263,317) 598,547,112
Aggressive Asset Allocation Portfolio - 15,783,046 Shares (Cost $182,854,406) 212,281,966
Equity-Income Portfolio - 34,629,206 Shares (Cost $449,113,434) 533,636,063
Strategic Bond Portfolio - 16,510,403 Shares (Cost $180,942,271) 197,299,313
International Growth and Income Portfolio - 14,792,022 Shares (Cost $160,071,003) 174,102,095
Growth Portfolio - 3,959,258 Shares (Cost $53,307,696) 54,360,608
Small/Mid Cap Portfolio - 12,220,796 Shares (Cost $160,214,651) 163,392,042
International Small Cap Portfolio - 6,684,989 Shares (Cost $87,430,362) 90,915,849
--------------
Total assets................................................................... $6,396,220,296
==============
CONTRACT OWNERS' EQUITY
Variable annuity contracts........................................................... $6,392,622,652
Annuity reserves..................................................................... 3,597,644
--------------
Total contract owners' equity................................................. $6,396,220,296
==============
</TABLE>
See accompanying notes.
2
<PAGE> 85
<TABLE>
NASL VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
<CAPTION>
Sub-Account
------------------------------------------------------------------------------------------
Investment
Equity Quality Bond Growth and Income
----------------------------- --------------------------- ---------------------------
Year Ended December 31 Year Ended December 31 Year Ended December 31
----------------------------- --------------------------- ---------------------------
1996 1995 1996 1995 1996 1995
------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends ........................... $ 98,211,395 $ 3,952,413 $ 8,112,676 $ 6,801,549 $ 26,099,422 $ 12,295,900
Expenses:
Mortality & expense risk and
administrative charges ............ 15,742,214 10,216,686 2,029,392 1,667,841 11,270,881 7,054,820
-------------- ------------ ------------ ------------ ------------ ------------
Net investment income (loss) .......... 82,469,181 (6,264,273) 6,083,284 5,133,708 14,828,541 5,241,080
Net realized gain (loss) .............. 70,538,266 29,102,556 1,866,806 (1,374,226) 26,208,114 11,439,262
Unrealized appreciation (depreciation)
during the period ................. 30,086,166 208,487,783 (6,225,133) 15,585,843 114,578,536 101,632,851
-------------- ------------ ------------ ------------ ------------ ------------
Net increase in net assets
from operations ................... 183,093,613 231,326,066 1,724,957 19,345,325 155,615,191 118,313,193
-------------- ------------ ------------ ------------ ------------ ------------
Changes from principal transactions:
Purchase payments ................... 176,179,265 152,243,325 26,033,539 20,615,193 156,149,545 105,864,684
Transfers between sub-accounts
and the Company ................... 21,282,426 91,976,289 (7,603,590) 610,884 62,642,334 53,438,203
Withdrawals ......................... (70,974,645) (41,022,073) (12,418,477) (9,834,428) (50,384,807) (30,901,300)
Annual contract fee ................. (593,891) (453,864) (62,358) (63,118) (378,803) (286,289)
-------------- ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets
from principal transactions ....... 125,893,155 202,743,677 5,949,114 11,328,531 168,028,269 128,115,298
-------------- ------------ ------------ ------------ ------------ ------------
Total increase (decrease) in net assets 308,986,768 434,069,743 7,674,071 30,673,856 323,643,460 246,428,491
Net assets at beginning of period ..... 950,040,654 515,970,911 137,687,722 107,013,866 638,230,845 391,802,354
-------------- ------------ ------------ ------------ ------------ ------------
Net assets at end of period ........... $1,259,027,422 $950,040,654 $145,361,793 $137,687,722 $961,874,305 $638,230,845
============== ============ ============ ============ ============ ============
</TABLE>
See accompanying notes.
3
<PAGE> 86
<TABLE>
NASL VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (continued)
<CAPTION>
Sub-Account
---------------------------------------------------------------------------------------
Blue Chip Growth Money Market Global Equity
-------------------------- -------------------------- -----------------------------
Year Ended December 31 Year Ended December 31 Year Ended December 31
-------------------------- -------------------------- -----------------------------
1996 1995 1996 1995 1996 1995
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends ........................... $ 856,382 $ 786,320 $ 14,797,551 $ 13,942,901 $ 10,705,346 $ 28,730,987
Expenses:
Mortality & expense risk and
administrative charges ............ 4,643,767 2,893,560 4,282,556 3,608,339 9,354,676 8,281,164
------------ ------------ ------------ ------------ ------------ ------------
Net investment income (loss) .......... (3,787,385) (2,107,240) 10,514,995 10,334,562 1,350,670 20,449,823
Net realized gain (loss) .............. 27,835,505 2,658,959 0 0 12,381,732 18,159,858
Unrealized appreciation (depreciation)
during the period ................. 44,603,170 41,777,908 0 0 53,342,983 (3,640,061)
------------ ------------ ------------ ------------ ------------ ------------
Net increase in net assets
from operations ................... 68,651,290 42,329,627 10,514,995 10,334,562 67,075,385 34,969,620
------------ ------------ ------------ ------------ ------------ ------------
Changes from principal transactions:
Purchase payments ................... 56,773,858 48,522,911 162,757,808 126,215,692 69,961,326 73,846,536
Transfers between sub-accounts
and the Company ................... 28,258,477 39,579,399 (52,784,116) (105,785,452) (21,060,694) (41,016,819)
Withdrawals ......................... (18,836,850) (9,818,260) (72,134,469) (52,028,607) (48,301,849) (39,666,888)
Annual contract fee ................. (167,159) (124,885) (142,787) (109,865) (393,841) (410,630)
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets
from principal transactions ....... 66,028,326 78,159,165 37,696,436 (31,708,232) 204,942 (7,247,801)
------------ ------------ ------------ ------------ ------------ ------------
Total increase (decrease) in net assets 134,679,616 120,488,792 48,211,431 (21,373,670) 67,280,327 27,721,819
Net assets at beginning of period ..... 262,581,885 142,093,093 247,203,082 268,576,752 617,748,460 590,026,641
------------ ------------ ------------ ------------ ------------ ------------
Net assets at end of period ........... $397,261,501 $262,581,885 $295,414,513 $247,203,082 $685,028,787 $617,748,460
============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes.
4
<PAGE> 87
<TABLE>
NASL VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (continued)
<CAPTION>
Sub-Account
--------------------------- --------------------------- ---------------------------
Global U.S. Conservative
Government Bond Government Securities Asset Allocation
--------------------------- --------------------------- ---------------------------
Year Ended December 31 Year Ended December 31 Year Ended December 31
--------------------------- --------------------------- ---------------------------
1996 1995 1996 1995 1996 1995
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends ............................. $ 20,353,777 $ 11,134,112 $ 12,043,963 $ 11,234,073 $ 13,280,150 $ 10,694,769
Expenses:
Mortality & expense risk and
administrative charges .............. 3,326,805 3,009,593 2,858,553 2,655,339 3,018,397 3,052,427
------------ ------------ ------------ ------------ ------------ ------------
Net investment income (loss) ............ 17,026,972 8,124,519 9,185,410 8,578,734 10,261,753 7,642,342
Net realized gain (loss) ................ 2,366,669 2,214,020 (1,404,574) 75,470 5,557,130 5,148,076
Unrealized appreciation (depreciation)
during the period ................... 6,050,899 31,070,281 (4,741,349) 15,587,098 (4,550,061) 19,853,900
------------ ------------ ------------ ------------ ------------ ------------
Net increase in net assets
from operations ..................... 25,444,540 41,408,820 3,039,487 24,241,302 11,268,822 32,644,318
------------ ------------ ------------ ------------ ------------ ------------
Changes from principal transactions:
Purchase payments ..................... 24,992,816 19,314,715 49,371,308 41,695,417 15,327,057 17,444,784
Transfers between sub-accounts
and the Company ..................... (19,896,239) (18,811,224) (49,747,858) (24,365,001) (17,748,883) (12,482,271)
Withdrawals ........................... (18,086,875) (15,701,657) (19,777,598) (16,213,816) (28,016,444) (31,190,237)
Annual contract fee ................... (114,090) (127,214) (82,721) (90,102) (128,219) (146,082)
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets
from principal transactions ......... (13,104,388) (15,325,380) (20,236,869) 1,026,498 (30,566,489) (26,373,806)
------------ ------------ ------------ ------------ ------------ ------------
Total increase (decrease) in net assets . 12,340,152 26,083,440 (17,197,382) 25,267,800 (19,297,667) 6,270,512
Net assets at beginning of period ....... 227,716,254 201,632,814 204,504,730 179,236,930 219,650,840 213,380,328
------------ ------------ ------------ ------------ ------------ ------------
Net assets at end of period ............. $240,056,406 $227,716,254 $187,307,348 $204,504,730 $200,353,173 $219,650,840
============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes.
5
<PAGE> 88
<TABLE>
NASL VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (continued)
<CAPTION>
Sub-Account
----------------------------------------------------------------------------------------
Moderate Aggressive Equity-
Asset Allocation Asset Allocation Income
--------------------------- --------------------------- ----------------------------
Year Ended December 31 Year Ended December 31 Year Ended December 31
--------------------------- --------------------------- ----------------------------
1996 1995 1996 1995 1996 1995
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends ............................. $ 51,330,043 $ 28,759,406 $ 15,310,582 $ 11,134,600 $ 27,996,391 $ 3,410,640
Expenses:
Mortality & expense risk and
administrative charges .............. 8,696,227 8,527,910 2,962,896 2,650,794 6,323,456 3,916,735
------------ ------------ ------------ ------------ ------------ ------------
Net investment income (loss) ............ 42,633,816 20,231,496 12,347,686 8,483,806 21,672,935 (506,095)
Net realized gain (loss) ................ 24,021,437 15,018,509 7,692,646 7,897,507 14,248,677 5,501,447
Unrealized appreciation (depreciation)
during the period ................... (17,357,736) 70,271,801 2,609,570 19,421,882 38,129,341 45,616,955
------------ ------------ ------------ ------------ ------------ ------------
Net increase in net assets
from operations ..................... 49,297,517 105,521,806 22,649,902 35,803,195 74,050,953 50,612,307
------------ ------------ ------------ ------------ ------------ ------------
Changes from principal transactions:
Purchase payments ..................... 42,525,583 42,501,661 18,402,805 22,202,012 89,722,422 78,127,224
Transfers between sub-accounts
and the Company ..................... (46,406,195) (26,640,289) (9,078,642) (10,804,739) 35,937,790 45,625,228
Withdrawals ........................... (79,658,173) (79,543,856) (23,728,286) (22,397,713) (24,729,054) (12,728,807)
Annual contract fee ................... (437,374) (485,596) (187,171) (195,083) (204,474) (140,801)
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets
from principal transactions ......... (83,976,159) (64,168,080) (14,591,294) (11,195,523) 100,726,684 110,882,844
------------ ------------ ------------ ------------ ------------ ------------
Total increase (decrease) in net assets . (34,678,642) 41,353,726 8,058,608 24,607,672 174,777,637 161,495,151
Net assets at beginning of period ....... 633,225,754 591,872,028 204,223,358 179,615,686 358,858,426 197,363,275
------------ ------------ ------------ ------------ ------------ ------------
Net assets at end of period ............. $598,547,112 $633,225,754 $212,281,966 $204,223,358 $533,636,063 $358,858,426
============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes.
6
<PAGE> 89
<TABLE>
NASL VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (continued)
<CAPTION>
Sub-Account
--------------------------------------------------------------------------------------
Strategic International
Bond Growth and Income Growth (1)
---------------------------- ---------------------------- ------------------------
Year Ended December 31 Year Ended December 31 Period Ended December 31
---------------------------- ---------------------------- ------------------------
1996 1995 1996 1995 1996 1995
------------ ------------ ------------ ------------ ------------ ------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends ............................. $ 9,643,463 $ 3,783,473 $ 190,489 $ 1,766,390 $ 341,211 $0
Expenses:
Mortality & expense risk and
administrative charges .............. 2,160,517 1,283,369 1,849,647 606,981 188,200 0
------------ ------------ ------------ ------------ ------------ --
Net investment income (loss) ............ 7,482,946 2,500,104 (1,659,158) 1,159,409 153,011 0
Net realized gain (loss) ................ 2,988,289 41,813 4,120,040 502,507 291,191 0
Unrealized appreciation (depreciation)
during the period ................... 8,247,559 12,274,700 12,154,473 1,876,619 1,052,912 0
------------ ------------ ------------ ------------ ------------ --
Net increase in net assets
from operations ..................... 18,718,794 14,816,617 14,615,355 3,538,535 1,497,114 0
------------ ------------ ------------ ------------ ------------ --
Changes from principal transactions:
Purchase payments ..................... 46,182,825 21,970,895 46,387,432 36,977,061 18,581,188 0
Transfers between sub-accounts
and the Company ..................... 30,347,502 3,987,010 36,418,911 45,342,755 34,906,152 0
Withdrawals ........................... (9,790,056) (5,783,698) (6,777,863) (2,331,931) (620,165) 0
Annual contract fee ................... (58,212) (45,959) (52,870) (15,290) (3,681) 0
------------ ------------ ------------ ------------ ------------ --
Net increase (decrease) in net assets
from principal transactions ......... 66,682,059 20,128,248 75,975,610 79,972,595 52,863,494 0
------------ ------------ ------------ ------------ ------------ --
Total increase (decrease) in net assets . 85,400,853 34,944,865 90,590,965 83,511,130 54,360,608 0
Net assets at beginning of period ....... 111,898,460 76,953,595 83,511,130 0 0 0
------------ ------------ ------------ ------------ ------------ --
Net assets at end of period ............. $197,299,313 $111,898,460 $174,102,095 $ 83,511,130 $ 54,360,608 $0
============ ============ ============ ============ ============ ==
- ----------
<FN>
(1) From commencement of operations July 15, 1996
</TABLE>
See accompanying notes.
7
<PAGE> 90
<TABLE>
NASL VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (continued)
<CAPTION>
Sub-Account
---------------------------------------------------
Small/Mid International
Cap (2) Small Cap (2) Total Total
------------------------ ------------------------ ------------- ---------------
Period Ended December 31 Period Ended December 31 Period Ended Period Ended
------------------------ ------------------------ ------------- -------------
December 31, December 31,
1996 1995 1996 1995 1996 1995
------------ ------- ----------- ------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends ............................. $ 0 $0 $ 333,347 $0 $ 309,606,188 $ 148,427,533
Expenses:
Mortality & expense risk and
administrative charges .............. 1,004,534 0 599,718 0 80,312,436 59,425,556
------------ -- ----------- -- -------------- --------------
Net investment income (loss) ............ (1,004,534) 0 (266,371) 0 229,293,752 89,001,977
Net realized gain (loss) ................ 78,950 0 544,789 0 199,335,667 96,385,758
Unrealized appreciation (depreciation)
during the period ................... 3,177,391 0 3,485,487 0 284,644,208 579,817,560
------------ -- ----------- -- -------------- --------------
Net increase in net assets
from operations ..................... 2,251,807 0 3,763,905 0 713,273,627 765,205,295
------------ -- ----------- -- -------------- --------------
Changes from principal transactions:
Purchase payments ..................... 62,148,022 0 30,573,571 0 1,092,070,370 807,542,109
Transfers between sub-accounts
and the Company ..................... 102,797,240 0 58,323,270 0 186,587,885 40,653,975
Withdrawals ........................... (3,784,793) 0 (1,732,325) 0 (489,752,729) (369,163,272)
Annual contract fee ................... (20,234) 0 (12,572) 0 (3,040,457) (2,694,779)
------------ -- ----------- -- -------------- --------------
Net increase (decrease) in net assets
from principal transactions ......... 161,140,235 0 87,151,944 0 785,865,069 476,338,034
------------ -- ----------- -- -------------- --------------
Total increase (decrease) in net assets . 163,392,042 0 90,915,849 0 1,499,138,696 1,241,543,328
Net assets at beginning of period ....... 0 0 0 0 4,897,081,600 3,655,538,273
------------ -- ----------- -- -------------- --------------
Net assets at end of period ............. $163,392,042 $0 $90,915,849 $0 $6,396,220,296 $4,897,081,600
============ == =========== == ============== ==============
- ----------
<FN>
(2) From commencement of operations March 4, 1996
</TABLE>
See accompanying notes.
8
<PAGE> 91
NASL VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION:
The NASL Variable Account (the "Account") is a separate account established by
North American Security Life Insurance Company (the "Company"). The Company
established the Account on August 24, 1984 as a separate account under Delaware
law. The Account operates as a Unit Investment Trust under the Investment
Company Act of 1940, as amended, and invests in the NASL Series Trust (the
"Trust") which currently consists of seventeen sub-accounts. The Account is a
funding vehicle for variable annuity contracts (the "Contracts") issued by the
Company. The Account includes 12 contracts, distinguished principally by the
level of expenses and surrender charges. These 12 contracts are as follows:
Venture Variable Annuity 1, 3, 7, 8, 17, 18, 20, 21, 22 and 23 ("VEN 1, 3, 7, 8,
17, 18, 20, 21, 22 and 23") and Venture Vision Variable Annuity 5 and 25 ("VIS 5
and 25"). The Company is a wholly-owned subsidiary of NAWL Holding Company, Inc.
("NAWL"). NAWL holds all the outstanding shares of the Company and Wood Logan
Associates, Inc. ("WLA"). Manufacturers Life Insurance Company ("MLI") owns all
class A shares of NAWL, representing 85% of the voting shares of NAWL. Certain
employees of WLA own all class B shares, which represent the remaining 15%
voting interest in NAWL. Prior to January 1, 1996, The Company was a
wholly-owned subsidiary of North American Life Assurance Company (NAL), a
Canadian mutual life insurance company. NAL merged with the Manufacturers Life
Insurance Company of Canada effective January 1, 1996. The surviving company
will conduct business under the name "Manufacturers Life Insurance Company."
On March 4, 1996, two new sub-accounts, Small/Mid Cap and International Small
Cap, commenced operations. On July 15, 1996, the Growth sub-account commenced
operations. Effective October 1, 1996, the name of Pasadena Growth was changed
to Blue Chip Growth. Effective December 31, 1996, the name of Value Equity was
changed to Equity-Income.
Effective after the close of business on December 31, 1996, the portfolios of
the Manulife Series Funds, Inc. (a series trust of MLI) were merged with the
NASL Series Trust. As a result of this merger, eight additional sub-accounts
will be available as investment options to the contract owners of the Account
beginning in 1997. Also, effective after the close of business on December 31,
1996, ten new sub-accounts were created which will be available as investment
options for contract owners in 1997. The merger and the creation of the new
funds had no effect on the statement of assets and contract owners' equity as of
December 31, 1996 nor the statement of operations and changes in net assets for
the year then ended.
2. SIGNIFICANT ACCOUNTING POLICIES:
Investments are made in the portfolios of the Trust and are valued at the
reported net asset values of such portfolios. Transactions are recorded on the
trade date. Income from dividends is recorded on the ex-dividend date. Realized
gains and losses on the sales of investments are computed on the basis of the
identified cost of the investment sold.
In addition to the Account, a contract holder may also allocate funds to the
Fixed Account, which is part of the Company's general account. Because of
exemptive and exclusionary provisions, interests in the Fixed Account have not
been registered under the Securities Act of 1933 and the Company's general
account has not been registered as an investment company under the Investment
Company act of 1940.
Annuity reserves are computed for contracts in the income stage according to the
1983a Individual Annuitant Mortality Table. The assumed investment return is 4%,
as regulated by the laws of the respective states. The mortality risk is fully
borne by the Company and may result in additional amounts being transferred into
the account by the Company.
9
<PAGE> 92
NASL VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1996
The operations of the Account are included in the federal income tax return of
the Company, which is taxed as a Life Insurance Company under the provisions of
the Internal Revenue Code (the "Code"). Under the current provisions of the
Code, the Company does not expect to incur federal income taxes on the earnings
of the Account to the extent the earnings are credited under the contracts.
Based on this, no charge is being made currently to the Account for federal
income taxes. The Company will review periodically the status of such decision
based on changes in the tax law. Such a charge may be made in future years for
any federal income taxes that would be attributable to the contract.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
3. AFFILIATED COMPANY TRANSACTIONS:
Administrative services necessary for the operation of the Account are borne by
the Company. The Company has an underwriting agreement with its wholly-owned
subsidiary, NASL Financial Services, Inc. ("NASL Financial"). NASL Financial has
a promotional agent agreement with Wood Logan Associates, Inc., an affiliate of
the Company, to promote the sales of annuity contracts.
Certain officers of the Account are officers and directors of the Company or the
Trust.
4. CONTRACT CHARGES:
There are no deductions made from purchase payments for sales charges at the
time of purchase. In the event of a surrender, a contingent deferred sales
charge may be charged by the Company to cover sales expenses. An annual
administrative fee of $30 is deducted from each contract owners' account on the
contract anniversary date to cover contract administration costs. This charge is
waived on certain contracts.
Deductions from each sub-account are made daily for administrative fees and for
the assumption of mortality and expense risk charges as follows:
(i) Prior Contract Series (VEN 1): deductions from each
sub-account are made daily for the assumption of mortality and expense risks
equal to an effective annual rate of 1.30% of the contract value.
(ii) Current Contract Series (VEN 3, 7, 8, 17, 18, 20, 21, 22,
23): deductions from each sub-account are made daily for administration and for
the assumption of mortality and expense risks equal to an effective annual rate
of 0.15% and 1.25% of the contract value, respectively.
(iii) Current Contract Series (VIS 5, 25): deductions from each
sub-account are made daily for distribution fees, administration and for the
assumption of mortality and expense risks equal to an effective annual rate of
0.15%, 0.25% and 1.25% of the contract value, respectively.
10
<PAGE> 93
NASL VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1996
<TABLE>
5. PURCHASES AND SALES OF INVESTMENTS:
The following table shows aggregate cost of shares purchased and proceeds from
sales of each sub-account for the year ended December 31, 1996.
<CAPTION>
Purchases Sales
--------- -----
<S> <C> <C>
Equity Portfolio $ 467,405,983 $ 259,043,647
Investment Quality Bond Portfolio 64,645,420 52,613,022
Growth and Income Portfolio 259,950,675 77,093,865
Blue Chip Growth Portfolio 165,496,643 103,255,702
Money Market Portfolio 597,672,257 549,460,826
Global Equity Portfolio 149,900,726 148,345,114
Global Government Bond Portfolio 65,936,774 62,014,190
U.S. Government Securities Portfolio 82,405,509 93,456,968
Conservative Asset Allocation Portfolio 40,082,371 60,387,107
Moderate Asset Allocation Portfolio 95,496,874 136,839,217
Aggressive Asset Allocation Portfolio 41,420,547 43,664,155
Equity-Income Portfolio 190,949,872 68,550,253
Strategic Bond Portfolio 125,776,519 51,611,514
International Growth and Income Portfolio 141,683,563 67,367,111
Growth Portfolio 57,792,998 4,776,493
Small/Mid Cap Portfolio 187,118,411 26,982,710
International Small Cap Portfolio 97,579,108 10,693,535
-------------- --------------
Total $2,831,314,250 $1,816,155,429
============== ==============
</TABLE>
11
<PAGE> 94
NASL VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1996
6. UNIT VALUES:
<TABLE>
A summary of the accumulation unit values at December 31, 1995 and 1996 and the
accumulation units and dollar value outstanding at December 31, 1996 are as follows:
<CAPTION>
1995 1996
---------- -------------------------------------------------
Unit Unit
Value Value Units Dollars
---------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
Equity sub-account
VEN 1 Contracts.................. $34.164256 $40.513296 18,984 $ 769,089
VEN 3 Contracts.................. 20.821819 24.664354 2,175,656 53,661,159
VEN 7 Contracts.................. 20.821819 24.664354 29,034,186 716,109,434
VEN 8 Contracts.................. 20.821819 24.664354 1,984,712 48,951,639
VIS 5 and 25 Contracts........... 15.402975 18.199588 3,896,591 70,916,345
VEN 17 Contracts................. 20.821819 24.664354 1,122,373 27,682,597
VEN 18 Contracts................. 20.821819 24.664354 22,371 551,771
VEN 20 Contracts................. 20.821819 24.664354 8,994,443 221,842,130
VEN 21 Contracts................. 20.821819 24.664354 3,147,370 77,627,845
VEN 22 Contracts................. 20.821819 24.664354 1,316,312 32,465,974
VEN 23 Contracts................. 20.821819 24.664354 321,421 7,927,629
---------- --------------
52,034,419 1,258,505,612
Investment Quality Bond sub-account
VEN 1 Contracts.................. 19.318272 19.560775 11,513 225,199
VEN 3 Contracts.................. 16.751499 16.943257 593,352 10,053,318
VEN 7 Contracts.................. 16.751499 16.943257 4,569,524 77,422,614
VEN 8 Contracts.................. 16.751499 16.943257 352,757 5,976,846
VIS 5 and 25 Contracts........... 11.417606 11.519237 1,084,870 12,496,880
VEN 17 Contracts................. 16.751499 16.943257 193,027 3,270,513
VEN 18 Contracts................. 16.751499 16.943257 9,083 153,894
VEN 20 Contracts................. 16.751499 16.943257 1,394,147 23,621,391
VEN 21 Contracts................. 16.751499 16.943257 434,182 7,356,452
VEN 22 Contracts................. 16.751499 16.943257 197,710 3,349,859
VEN 23 Contracts................. 16.751499 16.943257 78,708 1,333,569
---------- --------------
8,918,873 145,260,535
Growth and Income sub-account
VEN 3 Contracts.................. 16.660889 20.178770 1,787,490 36,069,351
VEN 7 Contracts.................. 16.660889 20.178770 25,383,756 512,212,966
VEN 8 Contracts.................. 16.660889 20.178770 2,189,350 44,178,384
VIS 5 and 25 Contracts........... 13.263871 16.024067 3,926,911 62,925,086
VEN 17 Contracts................. 16.660889 20.178770 1,135,270 22,908,355
VEN 18 Contracts................. 16.660889 20.178770 24,841 501,266
VEN 20 Contracts................. 16.660889 20.178770 8,658,969 174,727,339
VEN 21 Contracts................. 16.660889 20.178770 3,289,178 66,371,569
VEN 22 Contracts................. 16.660889 20.178770 1,507,845 30,426,452
VEN 23 Contracts................. 16.660889 20.178770 527,541 10,645,129
---------- --------------
48,431,151 960,965,897
</TABLE>
12
<PAGE> 95
NASL VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
1995 1996
--------- -----------------------------------------------
Unit Unit
Value Value Units Dollars
--------- --------- ---------- ------------
<S> <C> <C> <C> <C>
Blue Chip Growth sub-account
VEN 3 Contracts.................. 11.026969 13.688523 707,800 9,688,731
VEN 7 Contracts.................. 11.026969 13.688523 15,343,746 210,033,221
VEN 8 Contracts.................. 11.026969 13.688523 1,201,469 16,446,331
VIS 5 and 25 Contracts........... 11.551552 14.303631 2,170,279 31,042,868
VEN 17 Contracts................. 11.026969 13.688523 909,855 12,454,565
VEN 18 Contracts................. 11.026969 13.688523 21,838 298,934
VEN 20 Contracts................. 11.026969 13.688523 5,152,418 70,528,991
VEN 21 Contracts................. 11.026969 13.688523 2,356,190 32,252,759
VEN 22 Contracts................. 11.026969 13.688523 738,324 10,106,563
VEN 23 Contracts................. 11.026969 13.688523 298,492 4,085,919
---------- -----------
28,900,411 396,938,882
Money Market sub-account
VEN 1 Contracts.................. 15.478376 16.050779 5,920 95,026
VEN 3 Contracts.................. 14.190910 14.699636 1,575,179 23,154,555
VEN 7 Contracts.................. 14.190910 14.699636 9,846,532 144,740,437
VEN 8 Contracts.................. 14.190910 14.699636 840,966 12,361,888
VIS 5 and 25 Contracts........... 10.692803 11.048244 1,931,022 21,334,401
VEN 17 Contracts................. 14.190910 14.699636 302,728 4,449,987
VEN 18 Contracts................. 14.190910 14.699636 5,140 75,552
VEN 20 Contracts................. 14.190910 14.699636 3,874,503 56,953,789
VEN 21 Contracts................. 14.190910 14.699636 1,754,706 25,793,544
VEN 22 Contracts................. 14.190910 14.699636 244,417 3,592,843
VEN 23 Contracts................. 14.190910 14.699636 192,414 2,828,420
---------- -----------
20,573,527 295,380,442
Global Equity sub-account
VEN 3 Contracts.................. 16.459655 18.276450 2,060,063 37,650,644
VEN 7 Contracts.................. 16.459655 18.276450 22,555,919 412,242,122
VEN 8 Contracts.................. 16.459655 18.276450 1,757,970 32,129,452
VIS 5 and 25 Contracts........... 12.872711 14.257610 3,476,782 49,570,599
VEN 17 Contracts................. 16.459655 18.276450 807,823 14,764,135
VEN 18 Contracts................. 16.459655 18.276450 27,996 511,669
VEN 20 Contracts................. 16.459655 18.276450 5,145,277 94,037,395
VEN 21 Contracts................. 16.459655 18.276450 1,479,967 27,048,538
VEN 22 Contracts................. 16.459655 18.276450 725,911 13,267,081
VEN 23 Contracts................. 16.459655 18.276450 197,701 3,613,275
---------- -----------
38,235,409 684,834,910
</TABLE>
13
<PAGE> 96
NASL VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
1995 1996
--------- -----------------------------------------------
Unit Unit
Value Value Units Dollars
--------- --------- ---------- ------------
<S> <C> <C> <C> <C>
Global Government Bond sub-account
VEN 3 Contracts.................. 17.772344 19.803954 645,469 12,782,834
VEN 7 Contracts.................. 17.772344 19.803954 7,975,818 157,952,727
VEN 8 Contracts.................. 17.772344 19.803954 484,169 9,588,469
VIS 5 and 25 Contracts........... 12.434811 13.821405 1,388,876 19,196,224
VEN 17 Contracts................. 17.772344 19.803954 224,742 4,450,778
VEN 18 Contracts................. 17.772344 19.803954 10,407 206,107
VEN 20 Contracts................. 17.772344 19.803954 1,220,755 24,175,767
VEN 21 Contracts................. 17.772344 19.803954 393,134 7,785,608
VEN 22 Contracts................. 17.772344 19.803954 142,374 2,819,569
VEN 23 Contracts................. 17.772344 19.803954 52,203 1,033,822
---------- -----------
12,537,947 239,991,905
U.S. Government Securities sub-account
VEN 3 Contracts.................. 16.083213 16.393307 706,698 11,585,115
VEN 7 Contracts.................. 16.083213 16.393307 6,496,951 106,506,518
VEN 8 Contracts.................. 16.083213 16.393307 387,605 6,354,121
VIS 5 and 25 Contracts........... 11.333420 11.522857 1,193,266 13,749,835
VEN 17 Contracts................. 16.083213 16.393307 176,566 2,894,495
VEN 18 Contracts................. 16.083213 16.393307 3,091 50,679
VEN 20 Contracts................. 16.083213 16.393307 1,647,768 27,012,361
VEN 21 Contracts................. 16.083213 16.393307 864,829 14,177,409
VEN 22 Contracts................. 16.083213 16.393307 196,421 3,219,994
VEN 23 Contracts................. 16.083213 16.393307 103,362 1,694,443
---------- -----------
11,776,557 187,244,970
Conservative Asset Allocation sub-account
VEN 3 Contracts.................. 14.320582 15.113142 2,502,604 37,822,209
VEN 7 Contracts.................. 14.320582 15.113142 8,058,731 121,792,749
VEN 8 Contracts.................. 14.320582 15.113142 324,024 4,897,026
VIS 5 and 25 Contracts........... 11.672867 12.287873 854,258 10,497,010
VEN 17 Contracts................. 14.320582 15.113142 214,757 3,245,654
VEN 18 Contracts................. 14.320582 15.113142 1,584 23,932
VEN 20 Contracts................. 14.320582 15.113142 883,801 13,357,015
VEN 21 Contracts................. 14.320582 15.113142 397,294 6,004,357
VEN 22 Contracts................. 14.320582 15.113142 136,633 2,064,953
VEN 23 Contracts................. 14.320582 15.113142 37,880 572,483
---------- -----------
13,411,566 200,277,388
</TABLE>
14
<PAGE> 97
NASL VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
1995 1996
--------- -----------------------------------------------
Unit Unit
Value Value Units Dollars
--------- --------- ---------- ------------
<S> <C> <C> <C> <C>
Moderate Asset Allocation sub-account
VEN 3 Contracts.................. 14.752561 15.995076 7,190,308 115,009,524
VEN 7 Contracts.................. 14.752561 15.995076 22,857,443 365,606,537
VEN 8 Contracts.................. 14.752561 15.995076 1,259,589 20,147,221
VIS 5 and 25 Contracts........... 12.056663 13.039212 1,699,397 22,158,796
VEN 17 Contracts................. 14.752561 15.995076 586,159 9,375,652
VEN 18 Contracts................. 14.752561 15.995076 7,167 114,629
VEN 20 Contracts................. 14.752561 15.995076 2,649,111 42,372,724
VEN 21 Contracts................. 14.752561 15.995076 950,202 15,198,550
VEN 22 Contracts................. 14.752561 15.995076 419,129 6,703,998
VEN 23 Contracts................. 14.752561 15.995076 99,785 1,596,064
---------- -----------
37,718,290 598,283,695
Aggressive Asset Allocation sub-account
VEN 3 Contracts.................. 14.990551 16.701647 2,187,301 36,531,528
VEN 7 Contracts.................. 14.990551 16.701647 7,585,171 126,684,855
VEN 8 Contracts.................. 14.990551 16.701647 361,607 6,039,438
VIS 5 and 25 Contracts........... 12.443644 13.829135 527,340 7,292,660
VEN 17 Contracts................. 14.990551 16.701647 239,724 4,003,790
VEN 18 Contracts................. 14.990551 16.701647 3,871 64,649
VEN 20 Contracts................. 14.990551 16.701647 1,237,382 20,666,311
VEN 21 Contracts................. 14.990551 16.701647 488,150 8,152,913
VEN 22 Contracts................. 14.990551 16.701647 116,074 1,938,634
VEN 23 Contracts................. 14.990551 16.701647 46,171 771,127
---------- -----------
12,792,791 212,145,905
Equity-Income sub-account
VEN 3 Contracts.................. 13.548849 16.011513 718,170 11,498,984
VEN 7 Contracts.................. 13.548849 16.011513 16,078,400 257,439,509
VEN 8 Contracts.................. 13.548849 16.011513 1,635,658 26,189,355
VIS 5 and 25 Contracts........... 12.870851 15.172018 2,904,918 44,073,474
VEN 17 Contracts................. 13.548849 16.011513 1,120,892 17,947,170
VEN 18 Contracts................. 13.548849 16.011513 25,349 405,869
VEN 20 Contracts................. 13.548849 16.011513 6,463,654 103,492,884
VEN 21 Contracts................. 13.548849 16.011513 3,008,996 48,178,576
VEN 22 Contracts................. 13.548849 16.011513 1,187,415 19,012,314
VEN 23 Contracts................. 13.548849 16.011513 299,319 4,792,549
---------- -----------
33,442,771 533,030,684
</TABLE>
15
<PAGE> 98
NASL VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
1995 1996
--------- -----------------------------------------------
Unit Unit
Value Value Units Dollars
--------- --------- ---------- ------------
<S> <C> <C> <C> <C>
Strategic Bond sub-account
VEN 3 Contracts.................. 11.716972 13.250563 255,906 3,390,901
VEN 7 Contracts.................. 11.716972 13.250563 7,151,063 94,755,610
VEN 8 Contracts.................. 11.716972 13.250563 780,799 10,346,027
VIS 5 and 25 Contracts........... 11.607403 13.093621 1,157,303 15,153,288
VEN 17 Contracts................. 11.716972 13.250563 424,389 5,623,388
VEN 18 Contracts................. 11.716972 13.250563 17,046 225,869
VEN 20 Contracts................. 11.716972 13.250563 3,116,558 41,296,146
VEN 21 Contracts................. 11.716972 13.250563 1,301,826 17,249,932
VEN 22 Contracts................. 11.716972 13.250563 420,385 5,570,333
VEN 23 Contracts................. 11.716972 13.250563 276,194 3,659,728
---------- -----------
14,901,469 197,271,222
International Growth and Income sub-account
VEN 3 Contracts.................. 10.554228 11.718276 278,758 3,266,569
VEN 7 Contracts.................. 10.554228 11.718276 5,800,205 67,968,401
VEN 8 Contracts.................. 10.554228 11.718276 214,982 2,519,219
VIS 5 and 25 Contracts........... 10.528678 11.660474 1,038,598 12,110,541
VEN 17 Contracts................. 10.554228 11.718276 510,539 5,982,634
VEN 18 Contracts................. 10.554228 11.718276 8,736 102,373
VEN 20 Contracts................. 10.554228 11.718276 4,306,180 50,461,008
VEN 21 Contracts................. 10.554228 11.718276 1,918,371 22,479,999
VEN 22 Contracts................. 10.554228 11.718276 609,134 7,137,997
VEN 23 Contracts................. 10.554228 11.718276 174,572 2,045,687
---------- -----------
14,860,075 174,074,428
Growth sub-account
VEN 3 Contracts.................. -------- 13.727312 79,416 1,090,167
VEN 7 Contracts.................. -------- 13.727312 1,620,944 22,251,198
VEN 8 Contracts.................. -------- 13.727312 96,786 1,328,609
VIS 5 and 25 Contracts........... -------- 13.711434 193,088 2,647,515
VEN 17 Contracts................. -------- 13.727312 83,393 1,144,764
VEN 18 Contracts................. -------- 13.727312 1,639 22,502
VEN 20 Contracts................. -------- 13.727312 1,170,990 16,074,541
VEN 21 Contracts................. -------- 13.727312 458,281 6,290,972
VEN 22 Contracts................. -------- 13.727312 185,954 2,552,642
VEN 23 Contracts................. -------- 13.727312 66,585 914,032
---------- -----------
3,957,076 54,316,942
</TABLE>
16
<PAGE> 99
NASL VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
1995 1996
--------- -----------------------------------------------
Unit Unit
Value Value Units Dollars
--------- --------- ---------- --------------
<S> <C> <C> <C> <C>
Small/ Mid Cap sub-account
VEN 3 Contracts.................. -------- 13.215952 278,168 3,676,250
VEN 7 Contracts.................. -------- 13.215952 5,018,758 66,327,669
VEN 8 Contracts.................. -------- 13.215952 293,815 3,883,050
VIS 5 and 25 Contracts........... -------- 13.188627 871,586 11,495,020
VEN 17 Contracts................. -------- 13.215952 232,184 3,068,532
VEN 18 Contracts................. -------- 13.215952 0 0
VEN 20 Contracts................. -------- 13.215952 3,428,562 45,311,710
VEN 21 Contracts................. -------- 13.215952 1,541,924 20,377,996
VEN 22 Contracts................. -------- 13.215952 555,856 7,346,161
VEN 23 Contracts................. -------- 13.215952 128,596 1,699,514
---------- --------------
12,349,449 163,185,902
International Small Cap sub-account
VEN 3 Contracts.................. -------- 13.493094 227,036 3,063,418
VEN 7 Contracts.................. -------- 13.493094 2,989,507 40,337,696
VEN 8 Contracts.................. -------- 13.493094 165,594 2,234,374
VIS 5 and 25 Contracts........... -------- 13.465203 457,361 6,158,462
VEN 17 Contracts................. -------- 13.493094 124,844 1,684,536
VEN 18 Contracts................. -------- 13.493094 0 0
VEN 20 Contracts................. -------- 13.493094 1,827,628 24,660,354
VEN 21 Contracts................. -------- 13.493094 681,249 9,192,161
VEN 22 Contracts................. -------- 13.493094 217,265 2,931,584
VEN 23 Contracts................. -------- 13.493094 48,228 650,748
---------- --------------
6,738,712 90,913,333
Total: $6,392,622,652
==============
</TABLE>
17
<PAGE> 100
NASL VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1996
7. DIVERSIFICATION REQUIREMENTS:
Under the provisions of Section 817(h) of the Internal Revenue Code, a variable
annuity contract other than a contract issued in connection with certain types
of employee benefits plans, will not be treated as an annuity contract for
federal tax purposes for any period for which the investments of the segregated
asset account on which the contract is based are not adequately diversified. The
Code provides that the "adequately diversified" requirement may be met if the
underlying investments satisfy either a statutory safe harbor test or
diversification requirements set forth in regulations issued by the Secretary of
Treasury.
The Internal Revenue Service has issued regulations under Section 817(h) of the
Code. The Company believes that the Account satisfies the current requirements
of the regulations, and it intends that the Account will continue to meet such
requirements.
18
<PAGE> 101
PART C
OTHER INFORMATION
<PAGE> 102
Item 24. Financial Statements and Exhibits
(a) Financial Statements
(1) Financial Statements of the Registrant,
NASL Variable Account (Part B of the
registration statement)
(2) Financial Statements of the Depositor,
North American Security Life Insurance Com-
pany (Part B of the registration statement)
(b) Exhibits
(1) (i) Resolution of the Board of Directors of
North American Security Life Insurance
Company establishing the NASL Variable
Account - Incorporated by reference to
Exhibit (A)(1) to Form S-6, file number
2-93435, filed September 24, 1984 on behalf
of the NASL Variable Account of North
American Security Life Insurance Company.
(ii) Resolution of the Board of Directors of
North American Security Life Insurance
Company redesignating existing sub-accounts
and dividing the NASL Variable Account to
create additional sub-accounts, dated May
30, 1995--Previously filed as Exhibit
(b)(1)(ii) to post-effective amendment no. 3
to Form N-4 filed March 1, 1996.
(iii) Resolution of the Board of Directors of
North American Security Life Insurance
Company redesignating existing sub-accounts
and dividing the NASL Variable Account to
create additional sub-accounts, dated
September 30, 1996-- Filed herewith.
(iv) Resolution of the Board of Directors of
North American Security Life Insurance
Company redesignating existing sub-accounts
and dividing the NASL Variable Account to
create additional sub-accounts, dated
September 30, 1996-- Filed herewith.
(2) Agreements for custody of securities and similar
investments - Not Applicable.
(3) (i) Underwriting Agreement between North
American Security Life Insurance Company
(Depositor) and NASL Financial Services,
Inc. (Underwriter) -- Incorporated by
reference to Exhibit (A)(3)(a) to Form S-6,
file number 2-93435, filed September 24,
1984 on behalf of
<PAGE> 103
the NASL Variable Account of North American
Security Life Insurance Company.
(ii) Promotional Agent Agreement between NASL
Financial Services, Inc. (Underwriter),
North American Security Life Insurance
Company (Depositor) and Wood Logan
Associates, Inc. (Promotional Agent) and
NAWL Holding Company, Inc.--filed herewith.
(iii) Form of broker-dealer agreement between
North American Security Life Insurance
Company, NASL Financial Services, Inc.
(Underwriter), Wood Logan Associates, Inc.
(Promotional Agent) and broker-dealers --
Incorporated by reference to Exhibit
(b)(3)(iii) to pre-effective amendment no. 1
to Form N-4, file number 33-9960, filed
February 2, 1987 on behalf of the NASL
Variable Account of North American Security
Life Insurance Company.
(4) (i) Specimen Flexible Purchase Payment
Individual Deferred Variable Annuity
Contract, Non-Participating. Incorporated by
reference to Exhibit (b)(4)(i) to Form N-4 ,
file number 33-55712, filed on December 14,
1992 on behalf of the NASL Variable Account
of North American Security Life Insurance
Company.
(ii) Specimen Death Benefit Endorsement to
Flexible Purchase Payment Individual
Deferred Variable Annuity Contract,
Non-Participating.- Incorporated by
reference to Exhibit (b)(4)(ii) to Form N-4,
file number 33-55712 filed on March 2, 1995
on behalf of the NASL Variable Account of
North American Security Life Insurance
Company.
(iii) Withdrawal Charge Endorsement--Filed
herewith.
(5) Specimen Application for Flexible Purchase
Payment Individual Deferred Variable Annuity
Contract, Non-Participating. - Incorporated
by reference to Exhibit (b)(5) to Form N-4,
file number 33-55712 filed on March 2, 1995
on behalf of the NASL Variable Account of
North American Security Life Insurance
Company.
(6) (i) Certificate of Incorporation of North
American Security Life Insurance Company --
Incorporated by reference to Exhibit (A)(6)
to Form S-6, file number 2-93435, filed
September 24, 1984 on behalf of the NASL
Variable Account of North American Security
Life Insurance Company.
<PAGE> 104
(ii) By-laws of North American Security Life
Insurance Company--Previously filed as
Exhibit (b)(6)(ii) to post-effective
amendment no. 3 to Form N-4 filed March 1,
1996.
(7) (i) Contract of reinsurance in connection with
the variable annuity contracts being offered
- Reinsurance and Accounts Receivable
Agreements between North American Security
Life Insurance Company and ITT Lyndon Life,
effective December 31, 1993, and Amendments
thereto effective January 1, 1994 and
December 31, 1994. Incorporated by reference
to Exhibit (b)(7) to Form N-4, file number
33-55712 filed March 2, 1995 on behalf of
the NASL Variable Account of North American
Security Life Insurance Company.
(ii) Contract of reinsurance in connection with
the variable annuity contracts being offered
- Variable Annuity Guaranteed Death Benefit
Reinsurance Contract between North American
Security Life Insurance Company and
Connecticut General Life Insurance Company,
effective July 1, 1995--Previously filed as
Exhibit (b)(7)(ii) to post-effective
amendment no. 3 to Form N-4 filed March 1,
1996.
(iii) Contract of reinsurance in connection with
the variable annuity contracts being offered
- Contract between North American Security
Life Insurance Company and Swiss Re America,
effective August 1, 1995--Previously filed
as Exhibit (b)(7)(iii) to post-effective
amendment no. 3 to Form N-4 filed March 1,
1996.
(8) Other material contracts not made in the ordinary
course of business which are to be performed in whole
or in part on or after the date the registration
statement is filed:
(i) Form of Remote Service Agreement dated
November 1, 1996 between North American
Security Life Insurance Company and CSC
Continuum Inc.--filed herewith.
(9) Opinion of Counsel and consent to its use as to the
legality of the securities being registered -
incorporated by reference to Exhibit (b)(9) to Form
N-4, file number 33-55712, filed March 22, 1993.
(10) (i) Written consent of Ernst & Young, LLP
independent certified public
accountants--filed herewith.
(ii) Written consent of Coopers & Lybrand
independent certified public accounts--filed
herewith.
<PAGE> 105
(11) All financial statements omitted from Item 23,
Financial Statements - Not Applicable.
(12) Agreements in consideration for providing initial
capital between or among Registrant, Depositor,
Underwriter or initial contract owners -- Not
Applicable.
(13) Schedule for computation of each performance
quotation provided in the Registration Statement in
response to Item 21 -- Incorporated by reference to
Exhibit (b)(13) to Form N-4, file number 33-28455,
filed May 7, 1989 on behalf of the NASL Variable
Account of North American Security Life Insurance
Company. Additional Schedules for computation
incorporated by reference to Exhibit (b)(13) to form
N-4, file number 33-55712, filed March 2, 1994.
Additional schedule of computation--Previously filed
as Exhibit (b)(13) to post-effective amendment no. 3
to Form N-4 filed March 1, 1996.
(27) Financial Data Schedule - filed herewith
(15) (i) Powers of Attorney - North American Security
Life Insurance Company Directors
-incorporated by reference to Exhibit
(b)(14) to Form N-4, file number 33-55712,
filed March 22, 1993.
(ii) Power of Attorney - North American Security
Life Insurance Company Treasurer (Principal
Financial and Accounting Officer) --
incorporated by reference to Exhibit
(b)(14)(b) to Form N-4, file number
33-28455, filed April 2, 1993.
<PAGE> 106
Item 25. Directors and Officers of the Depositor.
OFFICERS AND DIRECTORS OF NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
Name and Principal
Business Address Position with Security Life
Brian L. Moore Chairman of the Board of Directors
200 Bloor Street East
North Tower 11th Floor
Toronto, Ontario
Canada M4W-1E5
Peter S. Hutchison Director
5650 Yonge Street
North York, Ontario
Canada M2M 4G4
John D. DesPrez III President and Director
73 Tremont Street
Boston, MA 02108
James Boyle Vice President, Annuity Administration
116 Huntington Avenue Services and Chief Administrative Officer
Boston, MA 02116
John G. Vrysen Vice President and Chief Actuary
73 Tremont Street
Boston, MA 02108
Hugh McHaffie Vice President, Product Management
73 Tremont Street
Boston, MA 02108
Richard C. Hirtle Vice President, Treasurer and Chief
73 Tremont Street Operating Officer
Boston, MA 02108
James D. Gallagher Vice President, Secretary and General
73 Tremont Street Counsel
Boston, MA 02108
<PAGE> 107
Iain Scott Vice President, Single Premium Variable Life
116 Huntington Avenue Insurance
Boston, MA 02116
Janet Sweeney Vice President, Corporate Services
73 Tremont Street
Boston, MA 02108
Item 26. Persons Controlled by or Under Common Control with Depositor or
Registrant.
THE MANUFACTURERS LIFE INSURANCE COMPANY
(Subsidiaries Organization Chart - including certain Significant Investments)
The Manufacturers Life Insurance Company (Canada)
1. ManuLife Holdings (Hong Kong) Limited - H.K. (100%)
2. ManuLife Financial Systems (Hong Kong) Limited - H.K. (100%)
3. P.T. Asuransi Jiwa Dharmala Manulife - Indonesia (51%)
4. WT (SW) Properties Ltd. - U.K. (100%)
5. OUB Manulife Pte. Ltd. - Singapore (50%)
6. Manulife (Malaysia) SDN. BHD. - Malaysia (100%)
7. Manulife (Thailand) Ltd. - Thailand (100%)
8. Young Poong Manulife Insurance Company - Korea (50%)
9. Ennal, Inc. - Ohio (100%)
10. First North American Realty, Inc. - Minnesota (100%)
11. NAL Resources Limited - Alberta (100%)
(a) Nottingham Gas Limited - Saskatchewan (31%)
12. Nottingham Gas Limited - Saskatchewan (31%)
13. 484551 Ontario Limited - Ontario (100%)
(a) 911164 Ontario Limited - Ontario (100%)
14. Peel-de Maisonneuve Investments Ltd. - Canada (50%)
(a) 2932121 Canada Inc. - Canada (100%)
<PAGE> 108
15. Balmoral Developments Inc. - Canada (100%)
16. KY Holding Corporation - Canada (100%)
17. 165351 Canada Limited - Canada (100%)
18. 172846 Canada Limited - Canada (100%)
19. 576986 Ontario Inc. - Ontario (100%)
20. Cantay Holdings Inc. - Ontario (100%)
21. Manufacturers Life Capital Corporation Inc. - Canada (100%)
22. Elliott & Page Asset Management Ltd. - Canada (100%)
23. 495603 Ontario Limited - Ontario (100%)
24. 994744 Ontario Inc. - Ontario (100%)
25. The North American Group Inc. - Ontario (100%)
26. Manulife Investment Management Corporation - Canada (100%)
(a) 159139 Canada Inc. - Canada (50%)
i. Altamira Management Ltd. - Canada (60.96%)
A. ACI2 Limited - Cayman (100%)
a/ Regent Pacific Group Limited-Cayman (63.8%)
a.1 Manulife Regent Investment Corporation -
Barbados (100%) 50% by Regent Pacific Group Limited
and 50% by Manulife Data Services Inc.
b.1 Manulife Regent Investment Asia Limited - Hong Kong (100%)
B. Altamira Financial Services Inc. - Ontario (100%)
a/ AIS Securities (Partnership) - Ontario (100%) 5% by
Altamira Financial Services, Inc. and 95% by Altamira
Investment Services Inc.
b/ Altamira Investment Services Inc. - Ontario (100%)
(a) AIS Securities (Partnership) - Ontario (100%)95%
by Altamira Investment Services Inc. and 5% by
Altamira Financial Services Inc.
(b) Altamira (Alberta) Ltd. - Alberta (100%)
(c) Capital Growth Financial Services Inc. - Ontario(100%)
<PAGE> 109
27. Manulife International Investment Management Limited - U.K. (100%)
(a) Manulife International Fund Management Limited - U.K. (100%)
28. Manulife (International) Limited - Bermuda (100%)
(a) The Manufacturers (Pacific Asia) Insurance Company Limited
- Hong Kong (100%)
(b) Newtime Consultants Limited - Hong Kong (100%)
29. Manulife Data Services Inc.- Barbados (100%)
(a) Manulife Regent Investment Corporation - Barbados - (100%)
50% by Manulife Data Services Inc. and 50% by Regent Pacific
Group Limited]
(b) Manulife Regent Investment Asia Limited - Hong Kong (100%)
30. FNA Financial Inc. - Canada (100%)
(a) NAL Trustco Inc. - Ontario (100%)
(b) First North America Insurance Company - Canada (100%)
(c) Elliott & Page Limited - Ontario (100%)
(d) Seamark Asset Management Ltd. - Canada (69.175%)
(e) NAL Resources Management Limited - Canada (100%)
(i) NAL Energy Inc. - Alberta (100%)
31. ManuCab Ltd. - Canada (100%)
(a) Plazcab Service Limited - Canada (100%)
32. Townvest Inc. - Ontario (100%)
33. Manulife Reinsurance Corporation (U.S.A.) - Michigan (100%)
(a) The Manufacturers Life Insurance Company (U.S.A.) - Michigan (100%)
(b) Manulife Holding Corporation - Delaware (100%)
i. Manufacturers Life Mortgage Securities
Corporation - Delaware (100%)
ii. Manulife Property Management of Washington, D.C., Inc.
- Washington D.C. (100%)
iii. Capital Design Corporation - California - (100%)
iv. ManEquity, Inc. - Colorado (100%)
v. Manulife Service Corporation - Colorado (100%)
vi. Succession Planning International Inc. - Wisconsin (100%)
(c) The Manufacturers Life Insurance Company of America - Michigan (100%)
i. Manulife Series Fund, Inc. - Maryland (100%)
ii. Manufacturers Adviser Corporation - Colorado (100%)
(d) Manulife Reinsurance Limited - Bermuda (100%)
34. The Manufacturers Investment Corporation - Michigan (100%)
<PAGE> 110
35. Capitol Bankers Life Insurance Company - Minnesota (100%)
36. NAWL (North American Wood Logan Holding Company) - Delaware (85%)
(a) Wood Logan Associates Inc. - Connecticut (100%)
(i) Wood Logan Distributors - Connecticut (100%)
(b) North American Security Life Insurance Company - Delaware (100%)
(i) NASL Financial Services, Inc. - Massachusetts (100%)
(ii) First North American Life Assurance Company - New York (100%)
37. Manulife (International) Reinsurance Limited - Bermuda (100%)
(a) Manulife (International) P&C Limited - Bermuda (100%)
(b) Manufacturers P&C Limited - Barbados (100%)
38. Manulife Financial Holdings Limited - Ontario (100%)
(a) 742166 Ontario Inc. - Ontario (100%)
(b) Family Realty Firstcorp Limited - Ontario (100%)
(c) Thos. N. Shea Investment Corporation Limited - Ontario (100%)
(d) Manulife Bank of Canada - Canada (100%)
i. Manulife Securities International Ltd. - Canada (100%)
Item 27. Number of Contract owners.
As of December 31, 1996, there were 638 qualified contracts and 2496
non-qualified contracts of the series offered hereby outstanding.
Item 28. Indemnification.
Article 9 of the Articles of Incorporation of the Company provides as follows:
NINTH: A director of this corporation shall not be liable to the corporation or
its stockholders for monetary damages for breach of fiduciary duty as a director
except to the extent such exemption from liability or limitation thereof is not
permitted under the General Corporation Law of the State of Delaware as the same
exists or may hereafter be amended. Any repeal or modification of the foregoing
sentence shall not adversely affect any right or protection of a director of the
corporation existing hereunder with respect to any act or omission occurring
prior to such repeal or modification.
Article XIV of the By-laws of the Company provides as follows:
Each Director or officer, whether or not then in office, shall be indemnified by
the Company against all costs and expenses reasonably incurred by or imposed
upon him or her, including legal fees, in connection with or resulting from any
claim, action, suit or proceeding, whether civil, criminal or administrative, in
which he or she may become involved as a party or otherwise, by reason of his or
her being or having been a Director or officer of the Company.
<PAGE> 111
(1) Indemnity will not be granted to any Director or officer with
respect to any claim, action, suit or proceeding which shall be brought against
such Director or officer by or in the right of the Company, and
(2) Indemnification for amounts paid and expenses incurred in settling
such action, claim, suit or proceeding, will not be granted, until it shall be
determined by a disinterested majority of the Board of Directors or by a
majority of any disinterested committee or group of persons to whom the question
may be referred by the Board, that said Director or officer did indeed act in
good faith and in a manner he or she reasonably believed to be in, or not
adverse, to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had reasonably cause to believe that his or her
conduct was legal, and that the payment of such costs, expenses, penalties or
fines is in the interest of the Company, and not contrary to public policy or
other provisions of law.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendre or its equivalent, shall
not, of itself, create a presumption that the person did not act in good faith
and in a manner which he or she reasonably believed to be in, or not adverse, to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was unlawful.
Indemnification shall be made by the corporation upon determination by a
disinterested majority of the Board of Directors or of a majority of any
disinterested committee or group or persons to whom the question may be referred
to by said Board, that the person did indeed act in good faith and in a manner
he or she reasonably believed to be in, or not adverse, to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had
reasonably cause to believe that his or her conduct was legal.
The foregoing right to indemnity shall not be exclusive of any other
rights to which such Director or officer may be entitled as a matter of law.
The foregoing right to indemnity shall also extend to the estate of any
deceased Director or officer with respect to any such claim, action, suit or
proceeding in which such Director or officer or his or her estate may become
involved by reason of his or her having been a Director or officer of the
Company, and subject to the same conditions outlined above.
Section IX, paragraph D of the Promotional Agent Agreement among the Company
(referred to therein as "Security Life"), NASL Financial and Wood/Logan
(referred to therein as "Promotional Agent") provides as follows:
a. NASL Financial and Security Life agree to indemnify and hold harmless
Promotional Agent, its officers, directors and employees against any
and all losses, claims, damages or liabilities to which they may become
subject under the Securities Act of 1933 ("1933 Act"), the 1934 Act or
other federal or state statutory law or regulation, at common law or
otherwise, insofar as
<PAGE> 112
such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact or any omission or alleged omission
to state a material fact required to be stated or necessary to make the
statements made not misleading in any registration statement for the
Contracts filed pursuant to the 1933 Act or any prospectus included as
a part thereof, as from time to time amended and supplemented, or any
advertisement or sales literature approved in writing by NASL Financial
or Security Life pursuant to Section VI, paragraph B of this Agreement.
b. Promotional Agent agrees to indemnify and hold harmless NASL Financial
and Security Life, their officers, directors and employees against any
and all losses, claims, damages or liabilities to which they may become
subject under the 1933 Act, the 1934 Act or other federal or state
statutory law or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon: (i) any oral or written
misrepresentation by Promotional Agent or its officers, directors,
employees or agents unless such misrepresentation is contained in any
registration statement for the Contracts or Fund shares, any prospectus
included as a part thereof, as from time to time amended and
supplemented, or any advertisement or sales literature approved in
writing by NASL Financial pursuant to Section VI, paragraph B of this
Agreement or, (ii) the failure of Promotional Agent or its officers,
directors, employees or agents to comply with any applicable provisions
of this Agreement.
Notwithstanding the foregoing, Registrant hereby makes the following undertaking
pursuant to Rule 484 under the Securities Act of 1933:
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid
by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
Item 29. Principal Underwriters.
a. North American Funds
First North American Life Assurance Company
b. Name and Principal Positions and Offices
Business Address with Underwriter
<PAGE> 113
Brian L. Moore* Chairman & Director
Richard C. Hirtle** President & Director
John D. DesPrez III** Director
James D. Gallager** Vice President, General Counsel
John G. Vrysen** Treasurer
Brian H. Buckley** Clerk
Lori-Ann Herbsmann*** Assistant Clerk - New York
Operations
Kimberly S. Ciccarelli** Assistant Clerk
E. Paige Sabine** Assistant Clerk
*200 Bloor Street East ***International Corporate Center at Rye
North Tower 11th Floor 555 Theodore Fremd Avenue
Toronto, Ontario Rye, New York 10580
Canada, M4W-1E5
**73 Tremont Street
Boston, MA 02108
c. None.
Item 30. Location of Accounts and Records.
All books and records are maintained at 116 Huntington Avenue, Boston, MA 02116
and at 73 Tremont Street, Boston, MA 02108.
Item 31. Management Services.
None.
Item 32. Undertakings.
<PAGE> 114
Representation of Insurer Pursuant to Section 26 of the Investment Company Act
of 1940
North American Security Life Insurance Company (the "Company") hereby represents
that the fees and charges deducted under the contracts issued pursuant to this
registration statement in the aggregate are reasonable in relation to the
services rendered, the expenses expected to be incurred, and the risks assumed
by the Company.
<PAGE> 115
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company
Act of 1940, the Registrant, NASL Variable Account, has caused this Amendment to
the Registration Statement to be signed on its behalf, in the City of Boston,
and Commonwealth of Massachusetts on this 27 day of February, 1997.
NASL VARIABLE ACCOUNT
(Registrant)
By: NORTH AMERICAN SECURITY LIFE INSURANCE
COMPANY
(Depositor)
By: /s/ JOHN D. DESPREZ III
------------------------------
John D. DesPrez III, President
Attest:
/s/ JAMES D. GALLAGHER
- -----------------------------
James D. Gallagher, Secretary
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Depositor has duly caused this Amendment to
the Registration Statement to be signed on its behalf by the undersigned on the
27 day of February, 1997 in the City of Boston, and Commonwealth of
Massachusetts.
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
(Depositor)
By: /s/ JOHN D. DESPREZ III
------------------------------
John D. DesPrez III, President
Attest:
/s/ JAMES D. GALLAGHER
- -----------------------------
James D. Gallagher, Secretary
<PAGE> 116
As required by the Securities Act of 1933, this amended Registration
Statement has been signed by the following persons in the capacities with the
Depositor and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ JOHN D. DESPREZ III Director and President February 27, 1997
- ----------------------- (Principal Executive
John D. DesPrez III Officer)
* Director February 27, 1997
- -----------------------
Peter S. Hutchison
* Director and Chairman February 27, 1997
- ----------------------- of the Board
Brian L. Moore
/s/ RICHARD C. HIRTLE Vice President and February 27, 1997
- ----------------------- Treasurer (Principal
Richard C. Hirtle Financial and Accounting
Officer)
*By: /s/ RICHARD C. HIRTLE February 27, 1997
---------------------
Richard C. Hirtle
Attorney-in-Fact
Pursuant to Powers
of Attorney
</TABLE>
<PAGE> 117
EXHIBIT INDEX
Exhibit No. Description
(b)(1)(iii) Resolution Redesignating the NASL Variable Account dated
February 1, 1996
(b)(1)(iv) Resolution Redesignating the NASL Variable Account dated
September 30, 1996
(b)(3)(ii) Promotional Agent Agreement
(b)(4)(iii) Withdrawal Charge Endorsement
(b)(8) Remote Service Agreement
(b)(10)(i) Consent of Ernst & Young LLP
(b)(10)(ii) Consent of Coopers & Lybrand L.L.P.
(b)(27) Financial Data Schedule
<PAGE> 1
ACTION BY UNANIMOUS CONSENT OF THE
BOARD OF DIRECTORS OF
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
Pursuant to the authority of Section 141(f) of the General Corporation Law of
the State of Delaware, the undersigned, being all of the directors of North
American Security Life Insurance Company ("the Company"), do take and adopt the
following action by their written consent effective February 1, 1996:
Authorization for Additional Sub-Accounts of Variable Separate Accounts
VARIABLE LIFE
WHEREAS, pursuant to Title 18, Section 2932(a) of the Delaware Code Annotated,
as amended, the Company, pursuant to a resolution dated April 30, 1986,
established a separate account, designated the NASL Variable Life Account, and
WHEREAS, the separate account is currently separated in fourteen sub-accounts
designated the "Equity Trust," the "Investment Quality Bond Trust," the "Money
Market Trust," the "Global Equity Trust," the "Pasadena Growth Trust," the
"Value Equity Trust," the "Growth and Income Trust," the "Strategic Bond Trust,"
the "Global Government Bond Trust," the "International Growth and Income Trust,"
the "U.S. Government Securities Trust," the "Aggressive Asset Allocation Trust,"
the "Moderate Asset Allocation Trust" and the "Conservative Asset Allocation
Trust"; be it
RESOLVED, that the Company does hereby divide the separate account to create
three additional sub-accounts designated the "International Small Cap Trust,"
the "Small/Mid Cap Trust" and the "Growth Trust"; and it is
FURTHER RESOLVED, that, from time to time, the sub-accounts may be redesignated
and the separate account divided to create additional sub-accounts without
further action by the Board of Directors of the Company.
<PAGE> 2
VARIABLE ACCOUNT
WHEREAS, pursuant to Title 18, Section 2932(a) of the Delaware Code Annotated,
as amended, the Company, pursuant to a resolution dated August 24, 1984,
established a separate account, designated the NASL Variable Account, and
WHEREAS, the separate account is currently separated in fourteen sub-accounts
designated the "Equity Trust," the "Investment Quality Bond Trust," the "Money
Market Trust," the "Global Equity Trust," the "Pasadena Growth Trust," the
"Value Equity Trust," the "Growth and Income Trust," the "Strategic Bond Trust,"
the "Global Government Bond Trust," the "International Growth and Income Trust,"
the "U.S. Government Securities Trust," the "Aggressive Asset Allocation Trust,"
the "Moderate Asset Allocation Trust" and the "Conservative Asset Allocation
Trust"; be it
RESOLVED, that the Company does hereby divide the separate account to create
three additional sub-accounts designated the "International Small Cap Trust,"
the "Small/Mid Cap Trust"and the "Growth Trust"; and it is
FURTHER RESOLVED, that, from time to time, the sub-accounts may be redesignated
and the separate account divided to create additional sub-accounts without
further action by the Board of Directors of the Company.
DATED as of the 30th day of September 1996.
/s/ Brian L. Moore
-----------------------------
Brian L. Moore
/s/ Peter S. Hutchison
-----------------------------
Peter S. Hutchison
/s/ John DesPrez III
-----------------------------
John DesPrez III
<PAGE> 1
ACTION BY UNANIMOUS CONSENT OF THE
BOARD OF DIRECTORS OF
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
Pursuant to the authority of Section 141(f) of the General Corporation Law of
the State of Delaware, the undersigned, being all of the directors of North
American Security Life Insurance Company ("the Company"), do take and adopt the
following action by their written consent:
Authorization for Additional Sub-Accounts of Variable Separate Accounts
VARIABLE LIFE
WHEREAS, pursuant to Title 18, Section 2932(a) of the Delaware Code Annotated,
as amended, the Company, pursuant to a resolution dated April 30, 1986,
established a separate account, designated the NASL Variable Life Account, and
WHEREAS, the separate account is currently separated into seventeen sub-accounts
designated the "International Small Cap Trust," the "Small/Mid Cap Trust," the
"Growth Trust," the "Equity Trust," the "Investment Quality Bond Trust," the
"Money Market Trust," the "Global Equity Trust," the "Pasadena Growth Trust,"
the "Value Equity Trust," the "Growth and Income Trust," the "Strategic Bond
Trust," the "Global Government Bond Trust," the "International Growth and Income
Trust," the "U.S. Government Securities Trust," the "Aggressive Asset Allocation
Trust," the "Moderate Asset Allocation Trust" and the "Conservative Asset
Allocation Trust"; be it
RESOLVED, that the Pasadena Growth Trust is hereby renamed as the Blue Chip
Growth Trust and the Value Equity Trust is hereby renamed as the Equity-Income
Trust to continue to have the same relative rights and preferences accorded
sub-accounts in said Variable Life Account; and it is
FURTHER RESOLVED, that the Company does hereby divide the separate account to
create eighteen additional sub-accounts designated the "Pacific Rim Emerging
Markets Trust," the "Science & Technology Trust," the "Emerging Growth Trust,"
the "Pilgrim Baxter Growth Trust," the "International Stock Trust," the
"Worldwide Growth Trust," the "Quantitative Equity Trust," the "Equity Index
Trust," the "Real Estate Securities Trust," the "Value Trust," the "Balanced
Trust," the "High Yield Trust," the "Capital Growth Bond Trust," the "Lifestyle
Aggressive 1000 Trust," the "Lifestyle Growth 820 Trust," the "Lifestyle
Balanced 640 Trust," the "Lifestyle Moderate 460 Trust" and the "Lifestyle
Conservative 280 Trust"; and it is
FURTHER RESOLVED, that, from time to time, the sub-accounts may be redesignated
and the separate account divided to create additional sub-accounts without
further action by the Board of Directors of the Company.
<PAGE> 2
VARIABLE ACCOUNT
WHEREAS, pursuant to Title 18, Section 2932(a) of the Delaware Code Annotated,
as amended, the Company, pursuant to a resolution dated August 24, 1984,
established a separate account, designated the NASL Variable Account, and
WHEREAS, the separate account is currently separated into seventeen sub-accounts
designated "International Small Cap Trust," the "Small/Mid Cap Trust," the
"Growth Trust," the "Equity Trust," the "Investment Quality Bond Trust," the
"Money Market Trust," the "Global Equity Trust," the "Pasadena Growth Trust,"
the "Value Equity Trust," the "Growth and Income Trust," the "Strategic Bond
Trust," the "Global Government Bond Trust," the "International Growth and Income
Trust," the "U.S. Government Securities Trust," the "Aggressive Asset Allocation
Trust," the "Moderate Asset Allocation Trust" and the "Conservative Asset
Allocation Trust"; be it
RESOLVED, that the Pasadena Growth Trust is hereby renamed as the Blue Chip
Growth Trust and the Value Equity Trust is hereby renamed as the Equity-Income
Trust to continue to have the same relative rights and preferences accorded
sub-accounts in said Variable Account; and it is
FURTHER RESOLVED, that the Company does hereby divide the separate account to
create eighteen additional sub-accounts designated the "Pacific Rim Emerging
Markets Trust," the "Science & Technology Trust," the "Emerging Growth Trust,"
the "Pilgrim Baxter Growth Trust," the "International Stock Trust," the
"Worldwide Growth Trust," the "Quantitative Equity Trust," the "Equity Index
Trust," the "Real Estate Securities Trust," the "Value Trust," the "Balanced
Trust," the "High Yield Trust," the "Capital Growth Bond Trust," the "Lifestyle
Aggressive 1000 Trust," the "Lifestyle Growth 820 Trust," the "Lifestyle
Balanced 640 Trust," the "Lifestyle Moderate 460 Trust" and the "Lifestyle
Conservative 280 Trust"; and it is
FURTHER RESOLVED, that, from time to time, the sub-accounts may be redesignated
and the separate account divided to create additional sub-accounts without
further action by the Board of Directors of the Company.
DATED as of the 30th day of September 1996.
/s/ Brian L. Moore
-----------------------------
Brian L. Moore
/s/ Peter S. Hutchison
-----------------------------
Peter S. Hutchison
/s/ John DesPrez III
-----------------------------
John DesPrez III
<PAGE> 1
PROMOTIONAL AGENT AGREEMENT
AGREEMENT ("Agreement") made as of this 1st day of January, 1996 by and
among NASL Financial Services, Inc. ("NASL Financial"), a broker-dealer
registered under the Securities Exchange Act of 1934 (1934 Act") and a member of
the National Association of Securities Dealers, Inc. ("NASD"), North American
Security Life Insurance Company ("Security Life"), a stock life insurance
company issuing, developing and sponsoring financial services products, and Wood
Logan Associates, Inc. (including, with respect to Investment Products, Wood
Logan Distributors, Inc., collectively "Promotional Agent"), also registered as
a broker-dealer under the 1934 Act and a member of the NASD, and NAWL Holding
Company, Inc. ("NAWL"), a holding company owning all voting stock of Security
Life and Promotional Agent, provided that, Security Life shall be deemed to be a
party to only those parts of this Agreement that pertain to Insurance Products,
as hereinafter defined. This Agreement hereby supercedes all prior promotional
agent agreements by and among the parties.
I. DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
set forth below:
Insurance Products - fixed and variable annuity contracts issued by
Security Life as of the date of this Agreement together with any
products developed during the period of this Agreement that are
regulated as insurance products under the laws of the several States of
the United States, some of which are also regulated as securities under
the federal securities laws.
Investment Products - shares of the North American Funds portfolios
sponsored by Security Life as of the date of this Agreement together
with any other products developed during the period of this Agreement
that are regulated as securities under the federal securities laws but
that are not regulated as insurance products under the laws of the
several States of the United States.
Financial Services Products - Insurance Products and Investment
Products, collectively.
Selling Agreements - contracts among Broker-Dealers, Promotional Agent
and NASL Financial (and Security Life in the case of Insurance
Products) providing for the distribution of Financial Services Products
issued, sponsored or developed by Security Life.
Broker-Dealers - brokerage firms and insurance agencies (to the extent
they are licensed to sell Financial Services Products) that have
entered into Selling Agreements to distribute Financial Services
Products to retail customers.
II. INTRODUCTION
WHEREAS, Security Life is in the business of issuing, developing and
sponsoring various Financial Services Products;
WHEREAS, Security Life distributes such Financial Services Products
through its wholly-owned subsidiary NASL Financial, which is the
principal underwriter of all its products regulated under the federal
securities laws;
WHEREAS, NASL Financial is authorized to enter into Selling Agreements
(with Security Life's consent in the case of Insurance Products) with
Broker-Dealers for the distribution of Financial Services Products; and
WHEREAS, Promotional Agent wishes to assist NASL Financial in making
arrangements with Broker-Dealers for the distribution of Financial
Services Products and in promoting the sale thereof through such
Broker-Dealers, and NASL Financial wishes the Promotional Agent to do
so;
<PAGE> 2
NOW THEREFORE, in consideration of the premises and the mutual
covenants hereinafter contained, the parties hereto agree as follows:
III. APPOINTMENT OF PROMOTIONAL AGENT
A. APPOINTMENT
NASL Financial hereby appoints Promotional Agent as its non-exclusive
agent for the promotion of sales of the Financial Services Products
specified in Schedule A hereto through Broker-Dealers, and Promotional
Agent accepts such appointments subject to the terms and conditions set
forth herein.
IV. DUTIES OF PROMOTIONAL AGENT
A. PROMOTION OF CONTRACTS
Promotional Agent agrees to use its best efforts to promote the sale of
Financial Services Products through Broker-Dealers, and in furtherance
thereof Promotional Agent shall to the extent it deems appropriate and
at its own expense:
(i) Use its best efforts to secure duly qualified Broker-Dealers to
enter into Selling Agreements for the distribution of Financial
Services Products;
(ii) Assist the Broker-Dealers who have entered into Selling Agreements
in obtaining for their registered representatives pursuant to Section
V, paragraph A (i) of this Agreement all necessary licenses,
registrations and appointments required by applicable regulatory
authorities so as to enable such registered representatives to sell
Financial Services Products;
(iii) Arrange on a periodic basis and preside over educational meetings
with Broker-Dealers who have entered into Selling Agreements so as to
ensure that their registered representatives are familiar with the
provisions and features of the Financial Services Products;
(iv) Provide technical assistance at the time of sale of Financial
Services Products to Broker-Dealers who have entered into Selling
Agreements;
(v) Prepare sales and promotional materials, such materials being
subject, however, to the prior approval of Security Life as provided in
Section VII B of this Agreement, and engage public relations advisors
as required;
(vi) Hold seminars for customers and potential customers of
Broker-Dealers who have entered into Selling Agreements;
(vii) Provide assistance to Broker-Dealers who have entered into
Selling Agreements in the ongoing servicing of Financial Services
Products;
(viii) Provide advice to Security Life on the development and redesign
of Financial Services Products for which it has or will be granted
exclusive promotional rights;
(ix) Bear costs of printing additional Prospectuses and Statements of
Additional Information for use in marketing activities; and
(x) Bear costs of printing additional annual and semiannual reports for
use in marketing activities.
<PAGE> 3
B. RIGHT TO REJECT SELECTED BROKER-DEALERS
In connection with securing Broker-Dealers to distribute Financial
Services Products, Promotional Agent will use its best efforts to
ascertain that each Broker-Dealer wishing to execute a Selling
Agreement shall have the highest business ethics and reputation, be
duly qualified with all federal, state and other regulatory bodies to
carry on the business of a Broker-Dealer, and otherwise be a suitable
person to represent NASL Financial and its affiliated companies. NASL
Financial may refuse to enter into a Selling Agreement with a
Broker-Dealer selected by Promotional Agent if such Broker-Dealer is
deemed by NASL Financial or Security Life to be unsuitable for any
reason. Neither NASL Financial nor Security Life will incur any
obligation to compensate, or reimburse the expenses of, Promotional
Agent as a result of any such refusal.
C. PROMOTIONAL AGENT'S EXPENSES
Promotional Agent will be responsible for all expenses (excluding first
time and renewal licensing expenses for sellers of Insurance Products)
incurred in recruiting Broker-Dealers to distribute Financial Services
Products and in performing its other duties under this Agreement.
Promotional Agent shall also be responsible for those expenses
specified in the attached Schedule B ("Statement of Expenses and
Compensation") with respect to each category of Financial Services
Products under this Agreement.
D. MARKETING OF SIMILAR PRODUCTS
Promotional Agent agrees that it will not promote the sale of Financial
Services Products similar to or competitive with Financial Services
Products without the consent of NAWL.
E. DISPUTES WITH BROKER-DEALERS
Promotional Agent will provide reasonable assistance to NASL Financial
in resolving any differences and disputes between NASL Financial and
Broker-Dealers which have entered into Selling Agreements under the
auspices of Promotional Agent. Promotional Agent shall not have the
right to establish any procedures for the settlement of, or to settle,
any disputes on behalf of NASL Financial without first obtaining NASL
Financial's written approval of such procedure or settlement.
Promotional Agent will at all times represent NASL Financial's best
interests in resolving any such disputes.
F REQUIRED REPORTS
Promotional Agent agrees, within 90 days after expiration of each
calendar year, to furnish Security Life with a written statement of
amounts received under or on account of this Agreement and amounts
expended thereunder during such calendar year. Such statement will
specify the compensation or profits received under this Agreement by
the respective directors, officers and other principal management
personnel of Promotional Agent, and such other items and further detail
as Security Life may reasonably require.
V. DUTIES OF NASL FINANCIAL AND SECURITY LIFE
A. DUTIES
NASL Financial or Security Life shall to the extent they deem
appropriate and at their own expense:
(i) Where permitted, obtain such corporate registrations and agent
licenses as are necessary to carry on business and issue and sell
Financial Services Products in all states of the United States and its
territories and shall process all licensing, registration and
appointment applications of Broker-Dealers;
<PAGE> 4
(ii) Underwrite fixed and variable annuities and variable life
policies;
(iii) Issue variable life policies, fixed and variable annuities and
provide full administration services therefore;
(iv) Design, in consultation with Promotional Agent, such additional
Financial Services Products as may be agreed upon from time to time
which can be marketed by Promotional Agent pursuant to this Agreement;
(v) Draft and file as required, prospectuses, contracts, application
forms and Selling Agreements;
(vi) Comply with all other legal and regulatory requirements in respect
of Financial Services Products; and
(vii) Review marketing materials prepared by Promotional Agent
promptly.
B. COOPERATION OF NASL FINANCIAL AND SECURITY LIFE
NASL Financial and Security Life agree that to the extent the
cooperation or concurrence of one is required to enable the other to
fulfill its obligations pursuant to this Agreement, they will cooperate
or concur to the extent permitted by law.
C. NON-LIMITATION
This Agreement shall not be construed so as to in any way limit or
affect the rights of NASL, NAWL or its parent, The Manufacturers Life
Insurance Company, or any of their subsidiaries, associates or
affiliates from designing or distributing through other channels any
product within or outside the United States, including variable
annuities, fixed annuities, variable life products or mutual funds.
VI. COMPENSATION
A. COMPENSATION SCHEDULE
In consideration of providing the services called for under this
Agreement, with respect to each category of Financial Services Products
the Promotional Agent shall receive the compensation detailed in
Schedule B ("Statement of Expenses and Compensation") attached hereto
and as amended from time to time pursuant to Section X, paragraph I of
this Agreement. Such compensation shall constitute full compensation to
Promotional Agent for all services performed and expenses incurred
under this Agreement.
VII. LIMITATIONS ON PROMOTIONAL AGENT'S AUTHORITY
A. SOLICITATION
Nothing contained herein shall be construed as granting authority to
Promotional Agent to sell Financial Services Products directly to, or
solicit applications for Financial Services Products directly from,
customers or prospective customers.
B. MARKETING MATERIALS
Promotional Agent will not use any marketing materials without Security
Life's or NASL Financial's (as applicable) prior review and written
approval.
<PAGE> 5
C. RESTRICTION ON INFORMATION
Neither Promotional Agent nor its representatives, employees and
affiliated companies are authorized to give any information or make any
representations concerning Financial Services Products other than those
contained in any registration statements or related prospectuses and
statements of additional information filed with the Securities and
Exchange Commission relating thereto or in such sales literature as may
be specifically authorized in writing by Security Life or NASL
Financial (as applicable) .
VIII. RECORDS
A. RECORD-KEEPING DUTIES
Promotional Agent, NASL Financial and Security Life agree to keep all
necessary records as are required of each by applicable federal and
state law and acceptable business practices and to render any necessary
assistance to one another for the accurate and timely preparation of
such records. The parties to this Agreement, their representatives and
the representatives of any regulatory body with jurisdiction, during
normal business hours and upon five (5) days written notice, shall have
access to any records pertaining to this Agreement maintained by the
other parties hereto for purposes of reviewing or copying same.
IX. CUSTOMER CONFIDENTIALITY
A. CONFIDENTIALITY
Promotional Agent agrees that the names and addresses of all customers
and prospective customers of NASL Financial and of any affiliated
company, which may come to the attention of Promotional Agent or any
company or person affiliated with Promotional Agent, are confidential.
Such customer information shall not be used without the prior written
consent of NASL Financial by Promotional Agent or any company or person
affiliated with Promotional Agent for any purposes whatsoever except as
may be necessary in connection with Financial Services Products covered
by this Agreement.
X. GENERAL PROVISIONS
A. WAIVER
Failure of any party to insist upon strict compliance with any of the
conditions of this Agreement shall not be construed as a waiver of any
of the conditions, but the same shall remain in full force and effect.
No waiver of any of the provisions of this Agreement shall be deemed to
be, or shall constitute, a waiver of any other provisions, whether or
not similar, nor shall any waiver constitute a continuing waiver.
B. BINDING EFFECT
This Agreement shall be binding on, and shall inure to the benefit of,
the parties to it and their respective successors and permitted
assigns, provided that this Agreement or any rights or obligations
hereunder may not be assigned without the prior written consent of the
parties hereto.
C. REGULATIONS
All parties agree to observe and comply with all laws, rules and
regulations applicable to the business contemplated by this Agreement.
<PAGE> 6
D. GOVERNING LAW
This Agreement shall be construed in accordance with and governed by
the laws of the State of Connecticut.
E. COMPLAINTS AND INVESTIGATIONS
Promotional Agent, NASL Financial and Security Life agree to cooperate
fully in the event of any regulatory investigation, inquiry or
proceeding, judicial proceeding or customer complaint involving
Financial Services Products.
F. TERMINATION
(a) This Agreement shall be for a period of five (5) years from the
date first mentioned above renewable automatically for one year periods
thereafter unless terminated by any party at the end of the five year
period or thereafter at the end of any one year period.
(b) This Agreement will terminate automatically if either NASL
Financial (or any successor thereto) or Promotional Agent should cease
to be a registered broker-dealer under the 1934 Act or a member of the
NASD. Termination shall not affect the obligations of the parties under
Section IX of this Agreement or under paragraph D of this Section X.
(c) This Agreement may be terminated by mutual consent of all the
parties to the Agreement.
G. AMENDMENT
This Agreement or any schedule annexed hereto may be amended only in
writing signed by all the parties.
H. COUNTERPARTS
This Agreement may be signed by the parties in counterpart.
The parties hereby execute this Agreement effective the date first
mentioned above.
I. AMENDMENT
This Agreement or any schedule annexed hereto may be amended only in
writing signed by all the parties.
WOOD LOGAN ASSOCIATES, INC.
Date: JANUARY 1, 1996
--------------------------------------
By: /s/ A. SCOTT LOGAN, President
-------------------------------------
Name and Title
<PAGE> 7
WOOD LOGAN DISTRIBUTORS, INC.
Date: January 1, 1996
-----------------------------------------
By: /s/ A. SCOTT LOGAN, President
----------------------------------------
Name and Title
NASL FINANCIAL SERVICES, INC.
Date:
-----------------------------------------
By: /s/ RICHARD C. HIRTLE, President
----------------------------------------
RICHARD C. HIRTLE, President
Name and Title
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
(with respect to Insurance Products only)
Date:
----------------------------------------
By: /s/ JOHN D. DESPREZ III, President
----------------------------------------
JOHN D. DESPREZ III, President
Name and Title
NAWL HOLDING COMPANY, INC.
Date: January 1, 1996
-----------------------------------------
By: /s/ H. DOUGLAS WOOD, President
-----------------------------------------
Name and Title
<PAGE> 8
SCHEDULE A
(i) Variable Annuities
(ii) Variable Life Contracts
(iii) Fixed annuities and/or fixed accounts
(iv) Mutual funds
(V) Such other Financial Services Products as are from time to time agreed
by the parties to the foregoing AgreEment and added to this Schedule A
in accordance therewith.
<PAGE> 9
SCHEDULE B
Statement of Expenses and Compensation
1. FINANCIAL SERVICE PRODUCTS
Subject to the terms and conditions of this Agreement, NASL Financial
will pay to Promotional Agent compensation of 1% of the premiums, purchase
payments and sales proceeds received and accepted under all Financial Services
Products distributed through Broker-Dealers having a Selling Agreement with NASL
Financial as a direct result of Promotional Agent's efforts (the "Promotional
Agent Fee"). NASL Financial shall pay Promotional Agent said compensation on a
monthly basis. In addition, for the period January 1, 1996 through June 30,
1996, NASL Financial will pay to Promotional Agent a monthly fee of $1.5 million
and for the period July 1, 1996 through December 31, 1996, NASL Financial will
pay to Promotional Agent a monthly fee of $1.340 million. The monthly fee is
payable on the first of each month and the amount of such fee may be changed by
mutual agreement of the parties hereto.
2. EXCHANGES
No commission will be paid to Promotional Agent upon exchanges among
Financial Service Products.
3. COMMISSION CHARGE BACKS
Contract owner's exercise of "FREE LOOK":
In the event a contract is returned to Security Life pursuant to such
provision, the full Promotional Agent Fee paid thereon shall be charged
back to Promotional Agent.
Refund of premium, purchase payment or Sales Proceeds:
Should any premium or purchase payment on any contract issued by
Security Life or any sales proceeds invested in the North American
Funds be refunded, for any reason, Promotional Agent shall repay or
return Promotional Agent Fees received by, it with respect to
such-premium, purchase payment or sales proceeds.
4. INVESTMENT PRODUCTS
1. NASL Financial Distribution Expenses - NASL Financial shall be entitled to
bill to Promotional Agent, and Promotional Agent agrees to reimburse NASL
Financial, for NASL Financial's expenses for the distribution of the North
American Funds ("NAF") as follows:
(a) the expense of maintaining the NAF wire order desk, including
personnel and associated overhead costs;
(b) costs of printing additional NAF Prospectuses and Statements of
Additional Information for use in marketing activities;
(c) costs of printing additional NAF annual and semiannual reports for
use in marketing activities; and
(d) any other distribution expenses incurred with the prior consent of
Promotional Agent.
2. Promotional Agent Distribution Expenses - Promotional Agent shall present a
report at each regular meeting of the Trustees of NAF setting forth its
distribution expenses incurred during NAF's most recently completed fiscal
quarter. Such expenses may include the distribution expenses reimbursed to NASL
Financial pursuant to paragraph 1 hereof.
<PAGE> 1
WITHDRAWAL CHARGE ENDORSEMENT
PART 9, WITHDRAWAL PROVISIONS, PARTIAL WITHDRAWAL and WITHDRAWAL CHARGE, of all
contracts beginning with form numbers VEN10 and VISION.001 to which this
endorsement is attached are amended as follows:
PARTIAL WITHDRAWAL The second paragraph is deleted.
WITHDRAWAL CHARGE This section is replaced in its entirety, as follows:
If a withdrawal is made from the Contract before the
Maturity Date, no withdrawal charge will be assessed
against Payments.
Endorsed on the Date of Issue of this Contract.
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
/s/ RICHARD HIRTLE
Vice-President
ENDORSEMENT.030 SAMPLE
<PAGE> 1
- --------------------------------------------------------------------------------
Confidential & Proprietary Information The Continuum Company, Inc.
REMOTE SERVICE AGREEMENT
AGREEMENT (this "Agreement" or "Service Agreement") made as of the first
of November, 1996, by and between the NORTH AMERICAN SECURITY LIFE INSURANCE
COMPANY ("Client") having its principal office and place of business at, 116
Huntington Avenue, Boston, Massachusetts 02116, and CSC CONTINUUM INC.
("Continuum"), having its principal offices and places of business at 9500
Arboretum Boulevard, Austin, Texas 78759.
WHEREAS, Continuum has developed a computerized data processing
recordkeeping system for certain life insurance and annuity products known as
VANTAGE-ONE AND DISTRIBUTION SUPPORT SYSTEM (the "System") and has the data
processing equipment and administrative support personnel (the "Facilities" or
"Continuum's Facilities") to provide and support remote terminal access to the
System and Facilities for the maintenance of records, processing of information
and the generation of output with the respect thereto; and
WHEREAS, Client has determined that it can use the System and Facilities
for administration activities with respect to the Contracts ("Contracts")
described in Exhibit A attached hereto and desires to obtain the right to use
the System and Facilities to service the Contracts;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
SECTION 1 TERMS OF APPOINTMENT
1.01 Subject to the provisions of this Agreement, Client hereby agrees
to use Continuum's System and Facilities to maintain certain records with
respect to the Contracts and generate output as described in Exhibit B with
respect to such Contracts. Subject to the provisions of this Agreement,
Continuum hereby agrees to provide Client the use of the System and Facilities
to maintain records of information and data transmitted to it by Client with
respect to such Contracts and to deliver or transmit to Client such output as is
generated by the use of the System and Facilities. Continuum agrees to use its
best efforts to provide services in accordance with the service levels described
in Exhibit D.
1.02 Client, with computer equipment and through transmission facilities
installed on its premises, shall transmit to Continuum's Facilities such
information and data that Client determines is to be input and that is required
to maintain the records and generate the output required hereunder with respect
to the Contracts.
1.03 Continuum agrees to provide requested training for Client personnel
at Continuum's Facility or at Client's offices in connection with the use and
operation of the System. This training will be provided at Continuum's then
current education rates. All reasonable travel and out-of-pocket expense
incurred by Continuum or Client personnel in connection with and during training
at Continuum's Facility shall be borne by Client.
1.04 Continuum will make on-line access to the System available to
Client between the hours of 7:00 a.m. and 7:00 p.m., Central Time, Monday
through Friday, except for such holidays as are observed by the New York Stock
Exchange. Access to the System at other times will be by mutual agreement.
1.05 Client shall have the option to purchase a license to the mainframe
version of the Annuity component of the VANTAGE-ONE Administration System. To
exercise this option, the entity exercising the option must execute the then
standard license agreement and pay Continuum a license fee of $________. If
Client exercises such option to the Annuity component, Client may, at the same
time, purchase a license to the mainframe version of the Distribution Support
System for an additional $________ and a license to the mainframe version of New
Business Underwriting for $__________. This option shall expire when the initial
term of this Agreement ends under Section 2.01. Enhancement and support fees
shall be contracted for and invoiced separately. At Client's request,
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Confidential & Proprietary Information The Continuum Company, Inc.
Continuum shall include in such license any modifications that Continuum uses to
provide the Services under this Agreement and shall retrofit such modifications
to the version of the software licensed under this section at Continuum's then
current standard time and materials rates.
SECTION 2 TERM
2.01 Subject to termination as hereinafter provided, this Agreement
shall remain in force and effect for a period of one (1) year, the initial term
of this Agreement. This Agreement shall be renewed automatically for successive
terms of one year at the end of the initial term and the end of each renewal
term unless terminated pursuant to Section 8.01.
SECTION 3 FEES AND EXPENSES
3.01 During the initial term of this Agreement, Client shall pay to
Continuum within thirty days of receipt of Continuum's statement the undisputed
fees and charges in the amounts as set out in Exhibit A attached hereto and made
a part hereof. Continuum may impose a 1.5% per month late payment charge on
balances outstanding for over thirty days, except for balances withheld for
failure to meet standards in accordance with Schedule D.
3.02 Client shall also reimburse Continuum for all reasonable
out-of-pocket expenses incurred by Continuum in the performance of this
Agreement, including those set forth in Exhibit A attached hereto and made a
part hereof. Continuum may impose a 1.5% per month late payment charge on
balances outstanding for over 30 days.
3.03 For each additional term of this Agreement Continuum shall be
entitled to receive such fees and charges as shall be agreed upon by the parties
prior to commencement of each such term, pursuant to Section 8.02 hereof.
3.04 Amounts payable to Continuum are payable in full, in United States
dollars, without deduction, and are net of all sales, use and related taxes and
duties. Client shall pay directly or to Continuum sums equal to all such taxes
and duties paid or payable by reason of this Agreement or the parties'
performance hereunder, exclusive of United States Federal, state and local taxes
based upon the net income of Continuum. Client shall not deduct from payments
due Continuum hereunder any amounts paid or payable to third parties for duties
or taxes, however designated, including withholding taxes. All taxes payable by
Client hereunder shall become due when billed by Continuum to Client, or when
assessed, levied or billed by the appropriate taxing authority, even though such
billing shall occur subsequent to expiration or termination of this Agreement.
SECTION 4 REPRESENTATIONS AND WARRANTIES OF CONTINUUM
Continuum represents and warrants to Client as follows:
4.01 It is a corporation duly organized and existing and in good
standing under the laws of the State of Delaware.
4.02 It is empowered under applicable laws and by its charter and bylaws
to enter into and perform the services contemplated in this Agreement.
4.03 All requisite corporate proceedings have been taken to authorize it
to enter into and perform the services contemplated in this Agreement.
4.04 It has and will continue to have and maintain the necessary
facilities, equipment, and personnel to perform its duties and obligations as
set forth under this Agreement.
4.05 The System will, in all material respects, have the same
functionality on January 1, 2000 that it had on December 31, 1999. No instance
of a noncompliance with this warranty shall be deemed a breach of this warranty
unless Client reports the noncompliance to Continuum in writing, in reasonable
detail, and within a reasonable period of time. Continuum shall have the right
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Confidential & Proprietary Information The Continuum Company, Inc.
to attempt to correct the noncompliance for a commercially reasonable period of
time before such noncompliance shall be considered a breach of this Agreement,
even if such period of time exceeds the thirty days specified by Sections 6.01
and 8.03.
4.06 Continuum does not, however, warrant uninterrupted or error-free
operation or performance of the Systems or any service. If Client reports an
error not caused by any of the matters listed in Section 6.02, then Continuum
will use commercially reasonable efforts to correct the error.
4.07 No statement in this Agreement or any other Continuum document is
intended to be a warranty unless it expressly states it is a warranty.
4.08 THESE WARRANTIES ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
SECTION 5 REPRESENTATIONS AND WARRANTIES OF CLIENT
Client represents and warrants to Continuum as follows:
5.01 It is a corporation duly organized and existing and in good
standing under the laws of the State of Delaware.
5.02 It is empowered under the applicable laws and regulations and by
its charter and bylaws to enter into and perform this Agreement.
5.03 All requisite corporate proceedings have been taken to authorize it
to enter into and perform this Agreement.
5.04 All of the prospectuses, Contracts and other forms provided or
required by Client shall have been approved by all required regulatory agencies
and shall be in compliance with all Federal, state, and local laws and
regulations.
5.05 It has and will continue to comply with all laws with respect to
the Contracts and it has and will continue to make all required filings with
regulatory agencies in connection with the offer, sale, or administration of the
Contracts.
SECTION 6 INDEMNIFICATION
6.01 In case of any claim by Client against Continuum related to this
Agreement or any transaction under this Agreement, regardless of the basis of
the claim, Continuum will be liable only for:
a. bodily injury (including death) and damage to real property and
tangible personal property; and
b. the amount of actual loss or damage suffered by Client, up to an
aggregate of the fees paid to Continuum by Client for the services
provided under this Agreement or its predecessor during the ____
months immediately preceding the occurrence of the claim.
Notwithstanding the provisions of Section 8.03, where Client's claim
relates to a defect in the System or any service, Client will give Continuum a
period of thirty days to correct the defect. If Continuum is able to correct the
defect, Continuum will not be liable for any damages.
6.02 Continuum shall not be responsible for, and Client shall indemnify
and hold Continuum harmless from and against, any and all costs, expenses,
losses, damages, charges, reasonable counsel fees, payments, and liability which
may be asserted against Continuum or for which it may be held liable, arising
out of or attributable to:
a) Any actions taken by Continuum in the performance of this
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Confidential & Proprietary Information The Continuum Company, Inc.
Agreement, provided such actions are taken in good faith and
due diligence;
b) Any failure by Client to comply with Federal, state or local
laws or regulations with respect to the offering and/or sale of
the Contracts or the records maintained, and/or Client's
failure to use and employ Continuum's System and Facilities in
accordance with the procedures set forth in the reference
manuals delivered to Client, Client's failure to utilize the
control procedures set forth and described therein, and
Client's failure to verify promptly reports received through
use of the System and Facilities;
c) Client's refusal or failure to comply with the terms of this
Agreement, or which arise out of Client's action or willful
misconduct or which arise out of the breach of any
representation or warranty of Client hereunder;
d) Client's errors and mistakes in the use of the System,
Facilities and control procedures;
e) Continuum's reliance on, or use of, in performing its duties
and obligations hereunder, information, data, records and
documents received by Continuum from Client, its custodian or
other agents; or
f) The reliance on, or the carrying out of, any instructions or
requests of Client pertaining to the normal day-to-day
operations and functions of the System made by any persons
listed on a "Schedule of Authorized Personnel" to be furnished
to Continuum by Client upon execution of this Agreement and
attached as Exhibit C, and as amended from time to time in
writing by Client.
6.03 In the event Continuum is unable to perform its obligations under
the terms of this Agreement because of strikes, equipment or transmission
failure or damage, or other causes beyond its control, Continuum will use its
best efforts to assist Client to obtain alternate sources of service. Continuum
will not be liable for any damages resulting from such causes.
6.04 At any time Continuum may apply to a person indicated on Client's
"Schedule of Authorized Personnel", attached hereto as Exhibit C, as a person
authorized to give instructions under this section with respect to any matter
arising in connection with this Agreement. Continuum shall not be liable for,
and shall be indemnified by Client against, any loss arising from any action
taken or omitted by Continuum in good faith in reliance upon such instructions.
6.05 Client shall immediately provide Continuum with written notice of
any change of authority of persons authorized and enumerated in Exhibit C to
provide Continuum with instructions or directions relating to services to be
performed by Continuum under this Agreement.
6.06 In the event a malfunction of the System causes an error or mistake
in any record, report, data, information or output under the terms of this
Agreement, Continuum shall at its expense correct and reprocess such records,
provided that Client shall promptly notify Continuum in writing of such error or
mistake in any record, report, data, information or output received by Client.
6.07 Except for a breach of the confidentiality obligations contained in
this Agreement, in no event shall either party under this Agreement be liable to
the other party under any provision of this Agreement for exemplary, special,
punitive or consequential damages.
6.08 The limitations of liability in this Section 6 will be enforced
even if any exclusive remedy fails of its essential purpose.
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Confidential & Proprietary Information The Continuum Company, Inc.
SECTION 7 COVENANTS OF CONTINUUM AND CLIENT
7.01 Continuum shall maintain the appropriate computer files of all
information and data transmitted to its Facilities by Client; provided, however,
that Continuum shall not be responsible or liable for any changes, alterations,
modifications therein or failure to maintain the same if Client shall have made
such changes, alterations, or modifications or shall be the cause of such
failure to maintain the same. It is expressly understood that all such data
transmitted by Client remains the exclusive property of Client.
7.02 Continuum shall maintain backup computer tape files on a daily
basis stored in an off-premises location. The purpose of back-up and recovery
procedures is to permit file recovery in the event of destruction of normal
processing files. Client may review the procedures in effect and inspect the
storage facility upon reasonable notice.
7.03 All information furnished by Client to Continuum hereunder is
confidential and Continuum shall treat such information as proprietary and not
disclose such information, directly or indirectly to any third party except to
the extent that Continuum is required by law to make such disclosure.
7.04 Client shall utilize and employ all control procedures available
under the System of which Client is advised and Client shall promptly advise
Continuum of any errors or mistakes in the data or information transmitted to
Continuum's Facilities, the records maintained or output generated hereunder
and, using normal audit and control procedures, Client shall verify all output
received hereunder.
7.05 Client shall transmit to Continuum's Facilities, in the formats and
form specified by Continuum, all information and data necessary or required in
connection therewith so that the output produced by the system shall be complete
and accurate when it is generated by Continuum's System and Facilities, and
Client shall be responsible and liable for the cost or expense of regenerating
any output if Client shall have failed to transmit any such data or information
and/or verify any such data or information when it is generated by Continuum's
System and Facilities.
7.06 In the event Client shall erroneously transmit information or shall
transmit incorrect information or data to Continuum's Facilities, Client shall
correct such information and data and retransmit the same to Continuum's
Facilities.
7.07 Client acknowledges that Continuum has proprietary rights in and to
the System and that the System (including the program code, documentation,
specifications, logic, and design of the System) constitutes confidential
material and trade secrets of Continuum. Client agrees to treat as proprietary
and confidential and not disclose the System and all information about
Continuum's internal affairs, business plans, and business practices. Continuum
shall be the owner and copyright holder of all work product that results from
programming services performed by Continuum for Client, including, but not
limited to, program code, documentation, specifications, logic, and design.
Continuum agrees to permit Client to use such work product in the event that
Client upgrades the version of the System in use under any then current remote
services agreement with Continuum.
SECTION 8 TERMINATION OF AGREEMENT
8.01 Either party may terminate this Agreement at the end of the initial
term or any renewal term by one hundred twenty (120) days written notice to the
other. At least one hundred fifty (150) days prior to the end of the initial
term or any renewal term, Continuum shall provide Client written notice of the
impending decision date. This Agreement may be terminated or amended by mutual
agreement of the parties in writing at any time. Client may terminate this
Agreement during its initial term by providing Continuum thirty (30) days prior
written notice.
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Confidential & Proprietary Information The Continuum Company, Inc.
8.02 At least ninety (90) days prior to each renewal term hereof,
Continuum shall give Client written notice if Continuum desires to increase its
fees or charges to Client or to change the manner of payment or to change any of
the other terms and conditions of this Agreement. If Continuum and Client do not
agree to such changed fees and charges, the manner of payment or other terms and
conditions before the end of the term during which such notice is given by
Continuum, or if Continuum does not withdraw the proposed changes, this
Agreement shall terminate at the end of such term.
8.03 If either of the parties hereto shall materially breach this
Agreement or be in default in the performance of any of its material duties and
obligations hereunder (the defaulting party), the other party hereto may give
written notice thereof to the defaulting party and if such default or breach
shall not have been remedied within thirty (30) days after such written notice
is given, then the party giving such written notice may terminate this Agreement
by giving thirty (30) days written notice of such termination to the defaulting
party.
8.04 If Continuum elects to terminate this Agreement for other than
nonpayment of fees and charges and if Client shall so request in writing,
Continuum shall continue to provide the services described herein to Client for
a period of six (6) months following such termination, such service to be
provided in accordance with the terms of this Agreement and at ________ percent
of the fees in effect for the term immediately preceding such six (6) months
period.
8.05 Termination of this Agreement by default or breach by Client shall
not constitute a waiver of any rights of Continuum in reference to services
performed prior to such termination or rights of Continuum to be reimbursed for
out-of-pocket expenditures; termination of this Agreement by default or breach
by Continuum shall not constitute a waiver by Client of any rights it might have
under this Agreement.
8.06 In the event that this Agreement is terminated, Continuum agrees
that, in order to assist in providing uninterrupted service to Client, Continuum
shall offer reasonable assistance to Client in converting the records of Client
from the System to whatever service or system is selected by Client, subject to
reimbursement of Continuum for such assistance at its standard rates and fees in
effect at that time.
8.07 Any provision of this Agreement that expressly or by implication is
intended to continue in force shall survive termination of this Agreement,
including, without limitation, sections 3, 6, 7.07, 8.04, 8.05, 8.06, and 8.07.
SECTION 9 ASSIGNMENT
9.01 Neither party may assign or sublicense or otherwise transfer
voluntarily, or by operation of law, any rights or obligations under this
Agreement without the other party's prior written consent. Upon request,
Continuum will consent to Client assigning this agreement so long as
______________________. Such an assignment shall not relieve Client of its
obligations hereunder.
9.02 This Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective successors and permitted assigns.
SECTION 10 MISCELLANEOUS
10.1 Client or its duly authorized independent auditors have the right
under this Agreement to perform on-site audits of records and accounts directly
pertaining to the products serviced hereunder by Continuum at Continuum's
Facilities in accordance with reasonable procedures and at reasonable
frequencies. Client shall reimburse Continuum for all of its reasonable costs
and expenses (including Time and Materials) incurred in connection with such
audits. At the request of Client, Continuum will make available to Client's
auditors and representatives of the appropriate regulatory agencies all
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Confidential & Proprietary Information The Continuum Company, Inc.
reasonable requested records and data.
10.02 The parties hereto agree that all tapes, books, reference manuals,
instructions, records, information, and data pertaining to the business of the
other party, Continuum's System and the policyowners serviced by Client
hereunder which are exchanged or received pursuant to the negotiation of and/or
the carrying out of this Agreement shall remain confidential and shall not be
disclosed to any other person and that all such tapes, books, reference manuals,
instructions, records, information and data in the possession of each of the
parties hereto shall be returned to the party from whom it was obtained upon the
termination or expiration of this Agreement.
10.03 Continuum shall have the right, at any time, and from time to
time, to alter and modify the System and any systems, programs, procedures or
facilities used or employed in performing its duties and obligations hereunder,
provided that no such alterations or modifications shall materially change or
affect the operations and procedures of Client in using or employing Continuum's
System or Facilities hereunder without the consent of Client, which such consent
shall not be unreasonably withheld.
10.04 It is understood and agreed that all services performed hereunder
by Continuum shall be as an independent contractor and not as an employee of
Client.
10.05 This Agreement (including Exhibits A to D attached hereto)
constitutes the entire agreement between the parties hereto and supersedes any
prior agreement with respect to the subject matter hereof, whether oral or
written, and this Agreement may not be modified except in a written instrument
executed by both of the parties hereto. The parties agree that the Service
Agreement dated April 11, 1985, as amended between Vantage Computer Systems,
Inc. (successor to DST Systems, Inc.) and Client shall hereby be terminated.
10.06 All notices and requests in connection with this Agreement shall
be given or made upon the respective parties in writing and shall be deemed as
given as of the date deposited in the U.S. mails, postage prepaid, certified or
registered, return receipt requested, and addressed as follows:
FOR: FOR:
NORTH AMERICAN SECURITY LIFE CSC CONTINUUM INC.
INSURANCE COMPANY
___________________________________ President
116 Huntington Avenue 301 West 11th Street
Boston, Massachusetts 02116 Kansas City, MO 64105
or to such other address as a party to receive the notice or request so
designates by written notice to the other.
10.07 This Agreement is to be construed in accordance with the laws of
the State of Delaware, without regard to conflicts of law principles.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf by and through their duly authorized
officers as of the day and year first above written.
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
By: ______________________________
NAME
______________________________
TITLE
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Confidential & Proprietary Information The Continuum Company, Inc.
CSC CONTINUUM INC.
By: ______________________________
NAME
______________________________
TITLE
8
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Confidential & Proprietary Information The Continuum Company, Inc.
EXHIBIT B
VARIABLE ANNUITY RECORDKEEPING SYSTEM
DAILY OUTPUT
1. Daily Cash Recap
2. Daily Unit Recap
3. Master File Update Error Report
4. Control Totals
5. Daily Price File Update
6. As of Transaction Report
7. Daily Production Report
8. Maintenance Journals
9. Investment Vehicle Earnings Report
10. Daily Batch Balance
11. Error Listing
12. Annuity New Policy Register
13. Super Sheet Balances
14. Daily Disbursement Check Register
15. Daily Check Reconciliation Update Register
MONTHLY OUTPUT
1. Monthly Product Report
2. Monthly Reserve Report
3. Premium Tax Report
CUSTOM FORM OUTPUT
1. Confirmation Statements
2. Specification Page
3. Delivery Letter
4. Commission Statements
5. Commission Checks
6. Disbursement Checks
9
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Confidential & Proprietary Information The Continuum Company, Inc.
EXHIBIT C
SCHEDULE OF AUTHORIZED PERSONNEL
The following individuals are authorized to give instructions or direction to
Continuum with respect to matters arising in connection with the servicing to be
performed under the Service Agreement:
Sarah Murphy Business Systems Executive
Richard C. Hirtle Vice President, Treasurer and Chief Financial Officer
David Rossien Assistant Vice President, Variable Products Information
Systems
James Boyle Vice President
10
<PAGE> 1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Independent Auditors"
and to the use of our reports dated February 25, 1997, with respect to the
financial statements of North American Security Life Insurance Company and
February 14, 1997, with respect to the financial statements of NASL Variable
Account, in Post Effective Amendment No. 4 to the Registration Statement (Form
N-4 File No. 33-55712) in the Statement of Additional Information of NASL
Variable Account of North American Security Life Insurance Company.
Ernst & Young LLP
Boston, Massachusetts
February 27, 1997
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Post Effective Amendment No. 4 to this
Registration Statement under the Securities Act of 1933 on Form N-4 (File No.
33-55712) in Part B of the Registration Statement of (i) our report dated
February 23, 1996, except for the information in Note 1 - "Basis of
Presentation", for which the date is February 21, 1997, on our audit of the
financial statements of North American Security Life Insurance Company and (ii)
our report dated February 23, 1996, on our audit of the financial statements of
NASL Variable Account. We also consent to the reference to our firm under the
caption "Independent Auditors."
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 27, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMAITON EXTRACTED FROM NASL
VARIABLE ACCOUNT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000753892
<NAME> NASL VARIABLE ACCOUNT
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 5,508,917,915
<INVESTMENTS-AT-VALUE> 6,396,220,296
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,396,220,296
<PAYABLE-FOR-SECURITIES> 2,213,685
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6,394,006,611
<TOTAL-LIABILITIES> 6,396,220,296
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 413,031,068
<SHARES-COMMON-PRIOR> 342,457,710
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 6,396,220,296
<DIVIDEND-INCOME> 309,606,188
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (80,312,436)
<NET-INVESTMENT-INCOME> 229,293,752
<REALIZED-GAINS-CURRENT> 199,335,667
<APPREC-INCREASE-CURRENT> 284,644,208
<NET-CHANGE-FROM-OPS> 713,273,627
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 107,842,710
<NUMBER-OF-SHARES-REDEEMED> 35,805,615
<SHARES-REINVESTED> 214,217,324
<NET-CHANGE-IN-ASSETS> 1,499,138,696
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
